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Author: 

Cleveland,  Frederick 
Albert 

Title: 

Chapters  on  municipal 
administration  and... 

Place: 

New  York 

Date: 

1915 


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Cleveland,  Frederick  Albert,  1865- 

Chapters  on  municipal  administration  and  accounting,  i 
by  Frederick  A.  Cleveland  . . .  New  York  [etc.]  Longmans,  ' 
Green,  and  eo.,-1909.  1916. 

xvi,  361  p.    20i"".      [$2,003 


1.  Municipal  government.    2.  Municipal  finance — Accounting. 


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CHAPTERS  ON 

MUNICIPAL  ADMINISTRATION 

AND  ACCOUNTING 


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THE  BANK  AND  THE  TREASURY. 
Crown  8vo. 

RAILROAD     PROMOTION     AND 
CAPITALIZATION  IN  THE 
UNITED   STA  FES. 
Crown  8vo. 


Chapters  on 

Municipal    Administration 

and    Accounting 


By 
FREDERICK  A.  CLEVELAND,  Ph.D. 

Director  of  the  Bureau  of  Municipal  Research 


NEW  IMPRESSION 


LONGMANS,    GREEN,    AND    CO 

FOURTH  AVENUE  6-  30TH  STREET,  NEW  YORK  ' 
LONDON,  BOMBAY,  CALCUTTA,  AND  MADRAS 

I9IS 


Copyright,  1909,  by 
Longmans,  Gbbbn,  and  Co. 


First  Edition,  May,  igog 
Reprinted,  April,  19x5 


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The  Plimpton  Press  Norwood  Mass.  U.S.A. 


PREFACE 

There  is  a  growing  appreciation  of  the  fact  that  de- 
mocracy, if  successful,  must  be  informed.  The  ofl&cer  is 
asked  not  only  to  be  true  to  his  trust,  but  also  to  lay  before 
the  citizen  a  full  and  prompt  account  of  all  matters  con- 
cerning which  the  pubUc  has  a  right  to  know.  Efl&ciency 
as  well  as  fidelity  is  demanded  of  him  who  is  given  public 
position  and  pubUc  honors. 

Four  fundamental  principles  of  government  have  been 
established  as  a  result  of  experience. 

1.  EfiFective  cooperation  must  be  based  on  intelligence. 

2.  Ofiicers,  whether  democratic  or  autocratic,  can  exer- 
cise intelligent  direction  over  afifairs  only  when  fully 
apprised  of  the  business  to  be  administered. 

3.  Organized  democracy  can  be  made  efifective  only  so 
long  and  so  far  as  it  provides  the  means  of  regularly  and 
currently  bringing  before  its  citizens  the  facts  necessary 
to  the  exercise  of  the  best  judgment  with  respect  to  the 
fidehty  and  efficiency  of  those  in  positions  of  trust. 

4.  When  the  pubUc  may  have  the  same  information 
concerning  public  afiFairs  that  each  member  has  concern- 
ing his  private  affairs  there  is  no  cooperative  activity 
required  for  the  highest  welfare  of  a  community  that  may 
not  only  be  undertaken  with  advantage  to  the  people  but 
with  honor  to  the  trusted  corporate  servants. 

Among  the  reasons  which  prompted  this  publication  are 
the  following:  There  is  at  present  litde  literature  available 
on  the  business  aspects  of  government;  a  considerable 
number  of  the  papers  and  addresses  have  been  repeatedly 
requested  and  are  not  available;  the  papers  and  addresses 


Yl 


PREFACE 


disclose  a  historical  relation  to  three  important  move- 
ments, viz.:  the  work  of  the  National  Municipal  League; 
the  work  of  the  Bureau  of  Census;  and  the  work  of 
the  Bureau  of  Mimicipal  Research.  The  first  of  these 
organizations,  through  its  annual  conferences,  has  done 
much  to  stimulate  interest  in  the  subject  of  municipal 
government;  the  second  has  rendered  invaluable  service 
in  bringing  together  the  comparable  statistics  of  American 
cities  and  in  applying  uniform  classification  to  methods 
of  reporting;  the  third  has  undertaken  a  scientific  field- 
study  of  municipal  organizations  and  of  administrative 
methods  and  results  with  a  view  (i)  to  informing  the 
public  with  respect  to  official  acts  and  community  needs; 
(2)  to  cooperating  with  officials  in  applying  to  public 
business,  methods  that  will  both  fix  responsibility  for 
waste  and  loss  of  public  funds,  and  insure  economy  and 
fidelity;  and  (3)  to  developing  progressively  the  power  of 
enlightened  public  opinion  through  making  available 
the  data  necessary  to  independent  judgment,  thereby 
enabling  the  beneficiaries  of  government  to  protect  public 
funds  and  properties  from  waste  and  making  citizenship 
an  effective  agency. 

Although  prepared  for  many  popular  and  successful 
bodies,  differing  widely  in  their  special  interest  to  the 
historian  and  publicist,  and  more  particularly  to  the 
beginner,  there  may  be  a  significance  in  these  fragments 
that  a  systematic  treatise  could  not  have  at  this  time  of 
pioneer  work  and  pioneer  thinking  toward  constructive 
municipal  reform. 

F.  A.  C. 

New  York,  February,  1909 


CONTENTS 


CHAP. 


I.    The    Genus    Grafter  —  With    Apologies 
TO  Bacteriology 

The  grafter  as  an  institutional  parasite  —  The  genus 
defined  —  Creatures  of  environment  —  How  dis- 
tinguished from  other  parasites  —  The  two  princi- 
pal families  of  grafters  —  The  grafter- vendor  —  The 
grafter-vendor  not  a  serious  menace  —  The  grafter- 
trustee  —  Some  of  the  most  dangerous  varieties  —  The 
grafter-trustee-guardiansis  —  The  graf ter-trustee-insur- 
ansis — The  graf ter-trustee-incorporatus — Graf ter-trus- 
tee-politicus  —  Political  grafting  less  profitable  than 
private  —  The  grafter  exists  because  conditions  are 
favorable  to  his  existence  —  An  uninformed  society  is  the 
grafter's  opportunity  —  Adaptations  of  the  species  — 
The  modification  of  conditions  —  Condition  favorable 
to  grafting —  Lack  of  information  necessary  to  insti- 
tutional control  —  The  limit  of  control  the  limit  of 
social  organization. 

II.    How   Municipalities   put   a   Premium   on 
Graft 

The  social  inducement  to  immorality  —  The  institu- 
tional inducement  to  graft  —  Why  servants  become  dis- 
honest—  Dishonesty  will  continue  if  encouraged  — 
The  grafter  not  to  be  blamed  —  The  community  at 
fault  in  not  protecting  honesty  —  How  the  grafter  may 
be  exterminated  —  Not  by  making  war  on  the  individual 
grafter  —  Must  come  through  intelligent  institutional 
control  —  The  means  of  obtaining  institutional  control. 

III.    Who   Pays   for    Graft   and   Inefficient 
Government? 

A  wrong  assumption  —  Democratic  government  an 
agent  of  the  common  man  —  Waste  and  loss  the  loss 

of  the  common  man  —  A  concrete  picture  of  waste 

vii 


PAGE 


16 


25 


VIU 


CONTENTS 


CONTENTS 


IX 


CHAP. 


Pay-roll  waste  —  Loss  on  supplies  —  Interest  on  graft 

—  Subversion  of  revenues  —  The  meaning  of  infidelity 
in  municipal  service  —  What  the  amount  wasted  would 
buy  —  The  price  paid  by  the  poor. 

IV.    What  we  do  not  Know  about  the  Affairs 
OF  Our  Cities 

The  subject  of  pay-rolls  —  The  purchase  of  supplies 
and  materials  —  The  keeping  of  municipal  stores  — 
Municipal  tools  and  equipment  —  Municipal  repairs 
and  replacements  —  Municipal  revenues  —  The  mak- 
ing of  a  municipal  budget  —  The  future  of  American 
cities. 

^        V.    The   Financul  Management  of  Munici- 
palities   

Preliminary  observations  —  The  method  of  acquir- 
ing funds  to  be  administered — Current  funds  —  Capital 
funds  —  Limits  of  borrowing — Advantages  of  borrow- 
ing capital  funds  —  Reduction  of  expenditures  —  Increase 
of  capital  by  revenue  saving  —  Difference  in  methods  of 
acquiring  capital — Sale  of  securities  and  corporate  stock 

—  Secured  and  unsecured  loans — The  administration  of 
revenues  and  expenses  —  Definitions  and  use  of  terras 

—  Administrative  purposes  of  revenue  accounts  — 
Determination  of  surplus  and  deficit  —  Methods  of 
making  revenues  available  —  Devices  for  prompt  col- 
lection —  Delayed  collections  and  temporary  loans  — 
Hypothecation  of  revenues  and  anticipation  of  tax  war- 
rants —  Local  assessments  in  lieu  of  revenues  —  Appli- 
cation of  revenue  receipts  —  Financial  economy  in 
administration  —  English  methods  —  The  American 
situation  —  Agencies  of  public  municipal  education  — 
The  administration  of  capital  and  loan  funds  —  The 
capital  balance  sheet  —  "Capital  funds"  to  be  seg- 
regated —  Capital  assets  to  be  protected  —  Capital 
assets  not  for  realization  —  Classification  for  adminis- 
trative purposes  —  Basis  for  judgment  as  to  capital 
assets  —  Idea  of  protection  fundamental  —  A<1  ministra- 
tion of  trust  fimds  —  Segregation  of  trust  funds  —  Man- 
agement of  receipts  and  disbursements  —  Cash  to  be 
accounted  by  funds  —  Methods  of  financial  control  — 
Organization  for  financial  control  —  Revenue  control  — 
Administrative  discretionary  control  —  English  and 
American  models  —  Centralization  vs.  decentralization 

—  Methods  of  control  under  a  centralized  system  — 
Conditions  under  which  decentralization  is  preferable. 


PAGB 


CHAP. 

VI. 


33 


43 


Principles  of  Budget  Making    .     . 

Constituent  elements  in  municipal  governments  — 
The  budget  as  an  instrument  of  control  —  Primary 
methods  of  control  —  Conditions  precedent  to  the 
effective  exercise  of  control  —  Electoral  control  — 
Representative  control  —  Official  control  —  Methods  of 
obtaining  information  as  a  basis  for  exercise  of  control 

—  Information  as  a  basis  for  control  —  The  experience 
of  private  business  —  Safeguards  of  the  past  nega- 
tive —  Controlling  purposes  of  the  budget  —  Significa- 
tion of  limitation  of  authority  to  spend  —  Use  of  budget 
as  instrument  of  positive  control  —  Administrative  ac- 
counts as  means  to  end  — Making  of  the  budget — The 
preparation  of  estimates  —  Collateral  inquiry  —  Pub- 
lication  of    estimates   of    and   examination   of   heads 

—  Formulation  of  tentative  budget  and  taxpayers* 
hearing  —  Supplementary  inquiry  — The  administra- 
tive importance  of  the  budget  —  As  related  to  methods 

of  control  —  In  the  audit  and  vouching  of  claims 

Transfers  and  revenue  bond  issues. 


VII.    A  Business  Man  at  the  Head  of  a  City's 
Business  Office 

A  business  man's  admission  of  failure  —  The  lesson 
which  his  failure  carries  —  Another  side  to  the  munici- 
pal institution  —  Why  a  business  man  may  find  him- 
self helpless  in  a  business  office  —  Legal  powers  with 
which  our  business  man  was  clothed  —  Legal  means 
of  enforcing  powers  —  Conditions  which  have  caused 
the  business  head  to  admit  defeat  —  Administrative 
conditions  essential  to  the  intelligent  exercise  of  powers 
—  A  system  which  compels  official  ignorance  —  Lack 
of  accounting  records  showing  liabilities  —  No  relation 
between  the  accounts  in  departments  and  those  kept 
in  central  office  —  How  organization  and  methods  of 
administrative  procedure  may  affect  municipal  debt  — 
Doubt  may  be  cast  on  legality  of  bonds  —  Increase 
of  debt  through  failure  to  audit  —  The  present  audit 
of  claims  a  farce  —  Claims  passed  for  supplies  without 
evidence  of  goods  received  —  Inspections  used  to  further 
graft  —  Debt  increased  by  false  charges  to  corporate 
stock  —  Extension  through  contracts  —  Inability  of 
controller  to  fasten  responsibility  for  infidelity  —  Sink- 
ing fund  revenues  may  be  diverted  —  General  fund 
revenues  may  be  lost  —  Conditions  under  which  central 
control  may  be  made  effective. 


PAGE 


67 


83 


CHAP. 

VIII. 


PAGE 


100 


II 


CONTENTS 

Municipal  Accounts  —  A  First   Step  to- 
ward Municipal  Reform 

The  responsibilities  of  citizenship  under  democratic 
government  —  Popular  control  over  the  public  cor- 
poration —  Ideals  of  popular  control  —  Failure  to  pro- 
vide the  means  necessary  to  enlightened  i)oliticaI 
judgment  —  Doctrines  of  laissez-faire  —  Conditions  de- 
manding increase  in  government  activities  —  Pro- 
vision of  methods  of  control  necessary  —  Accountancy 
as  a  guide  to  intelligent  arlrainistrative  and  political 
control  —  The  data  of  business — Facts  that  are  not 
forthcoming  —  Classes  of  financial  transactions  — 
Relations  of  proprietorship  and  trusteeship  —  The 
progress  of  accounting  science  in  response  to  adminis- 
trative  demands  —  Primitive   methods   of   intelligence 

—  Evolution  of  modem  methods  —  Developments  of 
methods  of  control  in  British  cities  —  First  step  toward 
a  better  corporate  procedure  —  First  application  to 
municipalities  —  Limitations  of  cash  accounts  —  Ap- 
plication of  methods  for  obtaining  better  results  — 
The  lateness  of  accounting  development  in  America 

—  Our  agricultural  condition  —  Recent  growth  of 
cities  —  Chaos  and  maladministration  the  result  of 
ignorance  —  Legal  steps  taken  —  Checks  and  balances 

—  The  need  for  accounts  —  A  first  premise  to  reform 

—  Need  for  accoimts  a  need  for  complete  and  accurate 
information  —  Recent  steps  taken  to  install  complete 
system  of  accounts  —  General  adherence  to  inferior 
methods  —  Obstacles  in  the  way  of  the  introdm  tion  of 
better  systems  of  municipal  accounts  —  Divided  respon- 
sibility —  Social  inertia  —  Labor  and  time  nee  essary 
to  revise  old  methods  —  Necessity  for  professional 
assistance  and  advice  —  The  example  of  the  private 
corporation  —  The  benefits  to  be  derived. 


IX.    Municipal  Credit  and  Accounting  Reform    124 

An  arraignment  of  present  methods  —  The  basis 
of  credit  —  Information  necessary  to  exercising  in- 
vestment judgment — The  citizen's  right  to  know  — 
A  prediction  of  reform  —  Responsibility  of  the  past 

—  The  present  opportunity  —  Pre-consolidation  records 

—  Lack  of  system  —  Multiplicity  of  processes  — 
The  completeness  of  operative  data  —  Need  for  central 
control  —  Departmental  subsidiary  accounts  —  Essen- 
tials of  a  complete  system  —  Magnitude  of  the  task  — 

—  An  expression  of  confidence  —  An  enlargement  of 
powers  —  Enlarged  responsibility  of  controller. 


CONTENTS 


CHAP. 


n 


PAGE 


X.    The    Administrative    Significance    of    a 
Municipal  Balance  Sheet       .... 

The  character  of  arguments  used  in  challenging  its 
significance  —  Defects  in  first  form  of  argument  — 
Specious  character  of  the  second  form  of  argument  — 
The  affirmative  side  of  the  case  —  Two  classes  of 
problems  to  be  considered  —  The  purpose  of  accounts 
and  reports  which  reflect  municipal  service  rendered 

—  The  constituencies  to  be  appealed  to  —  Character 
of  intelligence  needed  —  The  need  for  mimicipal  ac- 
counts and  reports  which  reflect  resources  and  liabilities 

—  Administrative  questions  to  be  answered  with 
respect  to  resources  and  liabilities  —  Questions  having 
to  do  with  expenses  of  operation  —  Questions  to  be 
answered  with  respect  to  the  funds  provided  for  ac- 
quisition of  public  properties  and  equipment  —  The 
analogy  of  private  accounting  —  The  protection  of  mu- 
nicipal properties  —  The  controlling  purpose  of  the 
balance  sheet  —  Conclusion. 

XI.  The  Administrative  Importance  of  Dis- 
tinguishing between  Revenues  and  Ex- 
penses AND  Receipts  and  Disburse- 
ments IN  Municipal  Accounting  .     .     . 

What  constitutes  a  complete  system  of  municipal 
accounts  —  All  data  must  be  collected  —  Each  trans- 
action must  be  properly  classified  —  All  facts  must  be 
coordinated  around  problems  of  administration  — 
Essential  difference  in  the  nature  of  expenses  and 
revenues  as  distinguished  from  receipts  and  disburse- 
ments—  Two  general  classes  of  accounts  —  The 
balance-sheet  item   "cash" — The   operation   accoimt 

—  Different  sources  of  revenue  accounts  and  cash 
receipts  —  Accounting  sources  of  expenses  and  dis- 
bursements —  Difference  in  administrative  purposes 
of  the  two  classes  of  accounts  — Purpose  of  expense  and 
revenue  accounts  —  Purpose  of  accounts  of  receipts 
and  disbursements  —  Purpose  of  trust  accounts  — 
The  reason  why  the  "cash  book"  accounts  are  the 
principal  ones  kept  in  American  municipalities  — 
Cash  the  first  asset  to  be  guarded  —  Single  entry  the 
first  accounting  method  —  Complete  double  entry  — 
Recent  development  of  administrative  accounts  — 
Cities  on  a  "cash  basis"  —  Cash  accounts  do  not  give 
op>erative  results  —  Sound  judgment  requires  opera- 
tive accounts  —  How  a  classified  statement  at   cash 


137 


^SS 


Xll 


CHAP. 


CONTENTS 


.PAGE 


\i 


receipts  and  disbursements  may  contribute  to  im- 
proved methods  of  accounting  —  Incomplete  cash 
data  better  than  none  —  Mistaken  idea  of  progress  — 
Evidence  of  the  perception  of  a  need  — An  aid  to 
statistics  —  The  distinction  r)etween  revenues  and  ex- 
penses and  receipts  and  disbursements  essential  to  admin- 
istrative efficiency. 

XII.    The  Nomenclature  and  Phraseology  of 

Municipal  Administration  and  Accounts    175 

Principles  determining  scientific  nomenclature  — 
Relation  of  accounts  and  statistics  to  administration 
—  ir'roblems  of  ownership  —  Problems  of  municipal 
operation —  Problems  of  municipal  trust  —  Informa- 
tion reqmred  to  determine  ability  to  meet  financial 
obligations  — Information  necessary  to  the  preserva- 
tion of  properties  —  Data  pertaining  to  municipal 
economy  and  official  control  —  Nomenclature  id 
phraseology. 


XIII. 


What  Constitutes  Reasonable  Uniform- 
ity in  Municipal  Accounts  and  Reports    186 

Common  functions  undertaken  by  municipalities 
--Common  corporate  safeguards  —  Uniformity  in 
tne  form  of  corporate  organization  of  municii)alities 
—  Uniformity  of  classification  —  Schedule  of  the  rom- 
mittees  — The  larger  work  of  the  committee  —  Uni- 
formity m  prmciples  of  accounting  —  Administrative 
problems  common  to  municipalities  —  Essentials  <  om- 
mon  to  accounts  —  Common  classification  of  income 
and  expenses  —  Common  basis  for  classification  of 
asset  and  liability  accounts  —  Departmental  accounts 
showmg  relations  of  fidelity  —  Classification   of  cash 

receipts  —  Classification    of    disbursements  —  Conclu- 
sion. 


XIV. 


Municipal  Ownership  as  a  Form  of  Con- 
trol   

The  transition  from  economic  individualism  to 
economic  centralization  —  The  newly  developed  inter- 
est m  government  control  —  Forms  of  control  proposed 
—  Doctrmes  of  control  as  applied  to  cities— Argu- 
ments briefly  stated  — The  question  of  success  or 
failure  of  municipal  industry  a  conditional  one  — 
Fundamental  considerations  -  Conditions  precedent  to 
successful   ownership  and   operation  of   enterprises  — 


903 


CONTENTS 


CHAP. 


» 


Administrative  elements  the  same  whether  public 
or  private  —  Efficiency,  economy,  and  fidelity  of  govern- 
ment essential  to  success  —  Standards  for  judgment 
required  —  The  problem  of  intelligent  control  —  The 
character  of  organization  —  The  means  for  promptly 
obtaining  accurate  information  —  Defective  administra- 
tive control  in  cities  —  The  establishment  of  standards 
for  judgment  —  Enforcing  responsibility  for  results  — 
Conclusion. 

XV.    Chicago's  Accounting  Reform    .... 

Charles  Waldo  Haskins  —  The  growth  of  Chicago 

—  The  situation  —  Attitude  of  the  mayor  —  The 
merchants'  club  —  Defects  m  the  system  of  adminis- 
tration —  Financial  and  economic  aspects  —  Faults 
in  the  financial  system  —  Reform  in  accounts  essential 

—  Features  of  the  new  system  —  Monthly  reports  as 
a  feature  —  Saving  effected  —  Increase  in  revenues  — 
The  work  of  audit  and  reorganization  —  Technical 
examination  —  The  balance  sheet  —  Classification  of 
revenue  accoimts  —  Classification  of  expense  accounts 

—  Conclusion. 

XVI.    The  System  of  Accounts  and  Statistics 
OF  the  City  of  New  York      .... 

The  purposes  of  the  investigation  —  Departments 
examined  —  Detailed  reports  on  method  —  General 
criticism  of  the  system  —  Charter  provisions  for  finan- 
cial control  —  Charter  provisions  for  executive  con- 
trol—  System  of  accounts  needed  for  financial  control 

—  Defects  in  the  system  of  accoimts  looking  toward 
financial  control  —  An  imperfect  account  of  revenue 
accruals  —  Revenue  books  not  in  control  and  not  cur- 
rently balanced  —  Multiplication  of  records  of  ex- 
penditure —  Failure  to  provide  accounts  and  statistics 
needed  by  the  board  of  estimate  and  apportionment  — 
Defects  in  the  general  books  and  controlling  financial 
accounts  —  Old  accounts  not  analyzed  —  Defects  in 
the  system  of  accounts  and  statistics  viewed  in  their 
relation  to  executive  or  operative  control  —  Duty  of 
mayor  to  keep  himself  informed  —  Inadequacy  of  office 
of  commissioners  of  accounts  —  Methods  by  which  a 
complete   administrative  accounting  may  be  obtained 

—  How  operative  accounts  may  be  controlled  —  Ad- 
vantages and  disadvantages  of  each  form  of  control 

—  Mayor  handicapped  by  present  charter  provisions  — 
Criticism   and   comment  on   the  accounts  of  depart- 


PAGE 


219 


244 


XIV 


CHAP. 


CONTENTS 


PAGE 


J 


I 


ments  examined  —  General  criticism  restated — Belle- 
vue  and  allied  hospitals  —  The  street  cleaning 
departments  — Docks  and  ferries — The  Board  of  Edu- 
cation—  Department  statistics  —  Need  for  better  re- 
ports. 

XVII.    Principles  Governing  the  Making  of  a 

School  Report 263 

The    purpose    of    making    reports  —  Departmental 
reports  —  Reports  of   subordinates —  Special  reports  — ■ 
What  a  published   report   should   contain  —  What   a 
superintendent's  report  should  contain  —  What  a  re- 
port of  a  board  should  contain  —  Report  as  to  service 
rendered  —  Report    as    to   equipment    used  —  Report 
as  to  financial  relations  and  results  —  Premises  sum- 
marized—  The  content  of  the  "fifth  annual  report  of 
the  city  superintendent  of  schools"  —  Principal  sub- 
jects  reported   on  —  Chief  criticism  as  to  content  — 
The  report  of  the  city  superintendent  considered  from 
the  standpoint  of  form  —  Outline  report  subject  of  prin- 
cipal interest  —  Adequacy  of  schools  and  departments 
of  instruction  to  render  service  —  Organization  of  the 
supervising   and   teaching   staff  —  Principles   of  expo- 
sition —  Statements  of  general  results  —  General  exhibit 
of  number  and  location  of  schools  and  departments  of 
instruction  —  Exhibit  of  organization  for  supervision  of 
instruction  —  Teaching  staff  by  boroughs  —  Teaching 
staff    by    classes    and    sexes  —  Comment    on    special 
topics  —  Should  lay  foundation  for  board's  report  — 
Why  complete  showing  should  be  made  —  The  "fifth 
annual  report  of  the  department  of  education" — Its 
form   and   method   of   presentation  —  Defective   char- 
acter of  report  —  Analysis  of  published  report  —  Con- 
tent of  the  report  as  to  service  rendered  —  Defects  in 
report  of  educational  service  rendered  —  Subjects  for 
report  on  "Educational"  service  found  in  the  law  — 
Subjects  for  report  on  administrative  service  —  Exhibit 
of  statistics  of  school  operation  —  General  administra- 
tion -—Content  of  the  report  of  the  board  of  education 
pertaining  to  physical  equipment  provided  for  school 
purposes  —  Defects  in  report  as  to  equipment  —  Gen- 
eral subjects  of  interest  with  reference  to  equipment  — 
Should  establish  units  of  comparison  —  Content  of  the 
report  as  to  financial  operation  and  financial  results  — 
Defects  in  financial  report  —  Absence  of  comparative 
tables  of  cost  —  Statements   of  revenues  defective  — 
Lack  of  harmony   with   statements  of  comptroller  — 
Statistics   showing    relations    of   economy  —  Expenses 


CONTENTS 


CHAP. 

incurred  —  Revenues  accrued  —  Comparison  of  ser- 
vice rendered  to  cost  —  No  additional  cost  if  books  are 
kept  to  give  results  wanted  —  No  statement  of  assets  and 
liabilities  —  Uses  to  be  made  of  such  statements  —  Con- 
clusions. 

XVlII.    Accounting    Methods    of    the    Depart- 
ment OF  Education  of  the  City  of  New 


PAGE 


York 


304 


XIX. 


Character  of  organization  —  Accounting  requirements 

—  The  accounts  kept  by  the  board  —  Collateral  records 

—  Financial  statistics  —  False  basis  for  expenses  — 
Information  not  taken  from  the  accoimts  —  The  char- 
acter of  data  on  which  the  administration  must  rely 
— Memoranda  kept  by  bureaus  —  Uncontrolled  records 

—  Incomplete  data  —  Lack  of  unity  in  the  system  — 
Division  of  responsibility  —  Lack  of  central  adminis- 
trative purpose  —  Records  of  one  department  not  co- 
ordmated  with  others  —  Difficulty  in  obtaining  compar- 
able facts  —  Lack  of  cooperation  —  On  the  part  of  the 
Bureau  of  Audit  —  On  the  part  of  the  Board'of  Super- 
intendents—  Effect  on  service  rendered  —  Work  of 
schools  hampered  —  Defects  in  classification  —  Ad- 
vantage of   imiform   classification  —  Sites  —  Buildings 

—  Advantage  of  classified  information  —  Basis  of  classi- 
fication —  A  restatement  of  conclusions. 

Administrative  Need  for  Accuracy  and 
Uniformity  in  the  Accounts  and  Re- 
ports of  Hospitals ^27 

The  hospital  as  a  subject  of  analysis  —  Definition 
of  a  science  —  The  scientific  study  of  hospitals  — 
What  may  be  done  by  the  scientific  study  of  hospital 
activities  —  What  may  be  done  by  the  scientific  study 
of  hospital  administration  —  The  advantages  of  a 
hospital  science  to  the  individual  institution  —  What 
may  be  done  by  the  formulation  of  an  effective  system 
of  accounting  control. 


XX.    Eleemosynary  Institutions  and  Account- 


ancy 


Philanthropy  and  corporate  trusteeship  —  The  view 
of  the  past  —  A  new  idea  as  to  corporate  responsibility 
—  The  race  ideal  of  accountability  and  control. 


3^6 


XVI 


CONTENTS 


I 


CHAP. 

XXI.    An    Agency    of    Citizen    Inquiry  — The 
Bureau  of  Municipal  Research 

A  bit  of  Franklin  philosophy  —  The  citizen's  busi- 
ness—Incidents of  corporate  trusteeship  —  Some  condi* 
tioM  which  suggest  inquiry  —  A  statement  of  principles 

—  The  work  of  the  Bureau  of  Municipal  Research  — 
Systematic  mquiry  for  facts  —  Methods  of  making  facta 
available— A  constructive  pn)gramme— "Muck-raking" 
no  part  of  the  Bureau's  work  —  Work  of  reorganization 
m  progress  — Powers  unused  made  operative  —  Coop- 
eration of  official  heads— New  methods  and  pnxedure 
installed  — The  need  for  citizen  support  — The  con- 
tmuing  need  for  an  independent  agency  of  citizen  inquiry 

—  Needs  of  government,  business  needs  — A  citizen's 
business  as  defined  by  Governor  Hughes. 


PAGE 


346 


\l 


n 


CHAPTER  I 

The  Genus  Grafter  — with  Apologies  to 

Bacteriology  ' 

Tra:  "muck-raker"  has  done  much  to  arouse;  he  has 
also  done  much  to  depress.    To  the  average  citizen  he 
does  not  preach  the  gospel  of  hope  but  of  poUtical  dam- 
nation.   His  graft  descriptions  have  had  much  the  same 
effect  aswould  the  circulation  of  a  hand  book  on  the  ravages 
of  consumption  among  the  inmates  of  a  hospital  for 
incurables     The  product   of  this  feeling  has  been  the 
despair  which  exhibits  itself  in  the  social  insanity  of  the 
anarchist  and  the  apathy  or  paralysis  of  the  patriot 
Ihe  anarchist  would  apply  to  institutional  infection  the 
firebrand,  urging  that  purification  may  be  accompUshed 
only  by  wholesale  destruction.    The  average  citizen  has 
lost  much  of  his  power  to  respond  to  patriotic  appeal. 
The  attitude  of  the  pubUc  toward  the  "grafter"  is  much 
the  same  as  was  the  attitude  of  the  inhabitants  of  yeUow 
fever  districts  ten  years  ago.    Through  ignorance  they 
suffered;  through  ignorance,  towns  were  burned  and  estab- 
hshed  mstitutions  were  demoHshed  in  vain  attempts  to 
obtain  relief.    For  this  hopelessness  of  ignorance,  science 
has  found  a  remedy.    Through  the  recognition  of  a  germ 
Mid  the  study  of  the  conditions  favorable  to  its  survival' 
the  scourge  of  fever  has  been  overcome.  ' 

Being  asked  to  speak  on  the  subject  of  "The  Grafter  " 
I  come  to  the  Schoolmen  of  New  York  to  talk  in  ter4 

•  Address  to  the  Schoolmen  of  New  York,  November  a6,  1906. 


I 


«  THE  GENUS  GRAFTER 

of  science  —  to  ask  you  to  consider  the  grafter  as  a  product 
of  conditions  which  are  favorable  to  his  culture.  Let  us 
abandon  the  attitude  of  the  ignorant  and  superstitious, 
and  accept  the  evolutionary  hypothesis  of  the  survival 
of  the  fittest  as  a  principle  of  research.  Let  us  not  accept 
as  a  conclusion  that  our  condition  is  hopeless,  until  we 
have  exhausted  every  resource:  (i)  in  attempting  to 
isolate  and  describe  the  grafter  in  such  a  way  that  he  may 
be  distinguished  from  his  fellows;  (2)  to  ascertain  what 
conditions  are  favorable  to  his  survival;  (3)  to  deter- 
mine who  or  what  is  responsible  for  thfiifc  conditions 
and  (4)  whether  conditions  may  be  produced  which  will 
cause  the  grafter  to  disappear,  or  to  exist  in  numbers  so 
small  and  in  form  so  emaciated  as  to  be  socially  and 
institutionally  harmless. 

THE  GRAFTER  AS  AN   INSTITUTIONAL  PARASITE 

Generically,  the  verb  to  graft  means  to  insert  or  install 

a  rootless  bud  or  detached  scion  into  the  succulent  fibre 

of  a  self-supporting  stem  in  such  a  manner  that  the  bud 

or  scion  thus  inserted  may  feed  on  the  sap  which  it  takes 

from  the  foster  stalk.     Generically  a  grafter  is  one  who 

knows  how  successfully  to  do  this  —  one 
The  genus  de-         ,  .1  mi     •  e^'  -i. 

fined  '^^^^j   possessmg   skill   m    graftmg,  utilizes 

it  for  his  own  support.  Figuratively,  the 
word  grafter  has  been  given  a  social  and  poUtical  signifi- 
cance. The  pohtical  grafter  is  one  who  is  an  adept  at 
installing  a  blood-sucking  constituency  (or  himself)  on 
some  part  of  the  body  politic.  Socially  he  is  one  who 
insinuates  or  weaves  himself  or  his  agents  into  some  part 
of  the  web  of  community  life  in  such  manner  that  he  is 
permitted  to  absorb  a  portion  of  communal  substance 
and  appropriate  it  to  his  own  profit. 

A  grafter  has  been  described  as  an  institutional  parasite. 


THE  GENUS  GRAFTER 


Creatures  of 
environment 


The  figure  is  instructive.    Regarding  the  genus  m  this 
Ught  it  is  found  that,  as  with  aU  microbes  and  animal 
pests,  grafters  have  developed  forms  as  varied   as  the 
social  and  institutional  conditions  on  which  they  thrive. 
The  corporate  forms  and  institutional  groups  to  which 
the  germ  in  its  many  varieties  has  been  found  attached 
are  both  public  and  private.     Nor  are  the 
zones  restricted  to  particular  occupations. 
The  organic  purpose  of  the  institution  in- 
fected may  be  business,  education,  philanthropy,  reUgion, 
recreation,   or   general    welfare.     Institutional   develop- 
ment has  been  one  of  specialization;  it  has  classified  indi- 
vidual workers  and  increased  the  limitations  and  restraints 
upon  them  in  such  a  manner  as  to  render  them  less  able  to 
take  care  of  themselves  and  more  in  need  of  organized 
community  protection.    With  each  class  or  institutional 
form,  we  may  find  a  species  of  the  genus  grafter  which 
has  adapted  itself  to  the  conditions  there  present,  enabling 
the  modified  species  not  only  to  survive  but  to  grow  fat 
and  strong.     The  distinguishing  feature  of  the  institutional 
parasite  known  as  grafter  is,  that  whereas  a  corporation, 
as  a  living  organism,  is  a  group  of  individuals  each  mem- 
ber of  which  is  cooperating  to  attain  a  common  end,  a 
grafter    (having   found   lodgment   thereon)    proceeds  \o 
divert  the  benefits  of  association  to  his  own  selfish  pur- 
poses.    In  one  sense  a  grafter  is  to  a  corporation  what 
the  parasitic  insect  is  to  the  animal  on  which  it  feeds; 
How  distin-       in    another    sense    he    is    sui   generis    in 

T^VZ^  '^"^^^  ^'''!'''  P°«''>°»  "f  ^v^^tage  by 
a  dettness  unknown  to  the  lower  forms  of 
life.  Possessed  of  highly  developed  reasoning  faculties, 
reckoning  on  human  sympathy  and  emotion  as  con- 
ditions with  which  he  has  to  deal,  his  lust  directs  his 
faculties  to  devise  the  means  by  which  he  may  successf uUy 


4  THE  GENUS  GRAFTER 

play  on  these  sympathies  and  emotions  and  through  them 
obtain  the  consent  of  the  victim  before  he  sucks  his  blood. 
This  consent  is  expressed  in  form  of  legal  and  social  con- 
ventions known  as  contracts,  and  therefore  consent  having 
been  once  obtained  he  claims  his  reward  as  a  vested  right, 
often  using  the  machinery  of  justice  as  an  instrument  of 
subversion. 

THE  TWO  PRINCIPAL  FAMILIES  OF  GRAFTERS 

The  classes  of  legal  conventions  or  contracts  most  fre- 
quently used  by  grafters  are  two,  viz.:  those  of  bargain 
and  sale,  and  those  of  trusteeship.  The  forms  of  graft 
that  are  carried  on  through  contracts  of  bargain  and 
sale  are  accomplished  either  through  the  vendor  taking 
advantage  of  individual  or  institutional  ignorance  or  by 
reason  of  individual  or  institutional  weakness.    Ignorance 

is  taken  advantage  of  by  misrepresentation 
vendOT****'"       ^^  fraud.    Weakness  being  relative  (he  being 

weak  who  is  unable  successfully  to  com- 
pete or  protect  himself),  the  superiority  which  gives  to 
the  grafter  his  advantage  is  commonly  acquired  through 
obtaining  from  society  a  legal  privilege  or  monopoly 
which  is  protected  by  society  itself  as  a  proprietary 
right.  Deftness  is  shown  in  the  method  of  obtaining  this 
privilege  or  right  to  take  from  society  a  portion  of  its 
substance.  The  right  may  be  attained  by  bribery  and 
corruption,  or  it  may  have  developed  through  the  applica- 
tion of  the  ordinary  rules  of  business.  In  either  case  the 
essential  fact  is  the  same  —  it  is  the  impotence  of  the 
individual  member  of  a  great  complex  society,  the  con- 
straint and  comparative  weakness  of  the  purchaser,  that 
is  availed  of  by  the  vendor. 

But  as  a  social  incubus,  the  grafter-vendor  is  not  to  be 
feared.    The  fraud  and  deception  incident  to  a  contract 


THE  GENUS  GRAFTER  ^ 

of  purchase  or  sale  may  be  readCy  detected  through 
public  mspection  and  through  instruments  of  popular 
inteUigence  such  as  the  press.  This  has  recently  been 
shown  m  the  administration  of  the  pure  food  law.  Com- 
plamt  IS  made  concerning  the  exercise  of  monopoly  powers 
--  exactions  by  so-called  Trusts;  this  again  should  enHst 
for  society  no  sympathy.  When  a  great  poUtical  body 
The  grafter-       Voluntarily    permits    its    members    to    be 

::;;ot  r^ce  °^^f  ^^  ^^^^"^^  ^^^  ^^  '^^  own  corporate 
or  foster  creatures,  it  is  in  the  attitude  of 
the  logger  who  openly  maintains  a  colony  of  body  parasites 
in  the  beUef  that  they  are  a  sign  of  good  health,  but  whose 
mdifiFerence  is  the  more  fully  explained  by  reference  to 
his  own  ignorance  and  indolence. 

The  forms  of  graft  that  are  carried  on  through  contracts 
of  trust,  on  the  other  hand,  should  be  subject  for  the 
greatest  concern.     Graft  of  this  kind  is  no  less  than  a 

The  grirfter-       ^"^'^^  ^^""^  ^^  ^^^uld  be  dealt  with  as  is 
trustee  ^heft  or  murder.    Having  induced  a  victim 

to  confide  properties,  business  or  income  to 
his  care,  the  grafter-trustee  proceeds  m  a  stealthy,  cow- 
ardly, sneakmg  manner  to  rob  the  one  by  whom'  he  is 
honored  and  trusted.  The  faith  reposed  in  him  is  the 
cover  under  which  he  hides  while  he  saps  the  Ufe-blood 
of  his  quarry.  That  we  may  better  know  the  traits  of 
this  social  parasite,  let  us  study  some  of  the  species  of 
the  grafter-trustee  in  relation  to  the  environment  which 
has  favored  their  growth. 

Our  social  structure  rests  on  the  famUy  —  a  conven- 
Some  of  the  tional  group  which  has  been  evolved  as  a 
Ta^It^^"""'  °'^^'''  ^^  giving  physical  comfort  and  men- 
tal and  moral  vigor  to  the  child.  In  this 
conventional  group  the  father  (not  being  encumbered  with 
the  burdens  of  maternity)  has  come  to  be  held  primarily 


6 


THE  GENUS  GRAFTER 


responsible  for  obtaining  the  physical  means  of  support. 
The  mother,  in  turn,  has  come  to  be  looked  to  for  the 
proper  administration  of  the  food  thus  provided  —  for 
wholesomeness  of  home  surroundings,  for  bodily  com- 
fort, and  for  the  transmission  of  race  morals  and  race 
ideals  through  which  the  child  may  be  brought  into 
social  harmony  with  the  community  in  which  he  lives. 
In  this  manner  has  our  society  worked  out  the  conditions 
favorable  for  health  and  vigor  in  the  child  —  favorable 
to  his  becoming  a  useful  citizen  and  to  the  })erpetuation 
and  strength  of  the  race.  The  family  thus  constituted 
is  made  our  underlying  social  institution  for  race  survival. 
Preying  on  the  family  wc  find  several  specialized 
varieties  of  the  order  grafter -trustee.  Pursuant  to  this 
race  ideal  of  family  responsibihty,  laws  of  inheritance 
have  grown  up  by  which,  on  the  death  of  the  male  ances- 
tor, the  fixed  or  producing  properties  acquired  during 
his  lifetime,  descending  direct  to  the  child,  are  to  be  held 
in  trust  in  order  that  the  producing  power  of  this  in- 
herited estate  may  remain  unimpaired  and  its  income 
may  be  available  for  support  during  the  heir's  minority; 
on  the  other  hand,  the  entire  personal  property  or  spend- 
able estate  is  placed  at  the  immediate  disfiosal  of  the 
natural  or  legal  guardian  for  the  use  and  benefit  of  the 
The  grafter-  surviving  members.  These  trusts  grow  out 
tnistee-guar-  of  the  highest  and  best  instincts  of  humanity 
diansis  — ^^  protection  and  care  for  the  helpless 

or  immature.  Some  person  must  be  charged  with  the  re- 
sponsibility for  their  execution.  Both  social  convention 
and  the  fostering  instincts  of  fatherhood  suggest  the  exercise 
of  extreme  care  that  the  trust  may  be  honorably  fulfilled. 
Usually  the  surviving  mother  has  little  knowledge  of  busi- 
ness. It  is  in  such  an  environment  and  in  such  a  position 
of  confidence  that  one  species  of  the  genus  grafter  thrives. 


THE  GENUS  GRAFTER  f 

Not  long  since  a  common  illustration  of  the  kind  came 
forcibly  to  the  attention  of  the  speaker.    A  son  who  had 
reached  his  majority  had  been  made  executor  for  the  bene- 
fit of  himself,  his  mother  and  his  sister.    Immediately 
upon  the  estate  coming  into  his  hands,  he  began  to  plunder 
it.    This  was  done  by  various  methods;  but  the  one  by 
which  the  estate  suffered  most  was  that  of  falsely  carry- 
ing through  his  trust  accounts,  purchases  and  sales  of 
stocks  and  bonds  at  prices  which  caused  the  estate  to 
lose.    These  purchases  and  sales  were  entirely  false  and 
were  used  as  a  trick  by  means  of  which  the  tide  to  the 
personal  property  of  others  might  be  acquired  by  himself. 
Whenever  he  felt  that  he  was  in  need  of  funds  he  ran  a 
few  deals  through  his  books.    There  was  no  one  to  watch 
and  no  one  to  ward.    The  circumstances  which  made 
it  so  easy  for  him  to  turn  the  funds  of  the  estate  to  his 
own  use  need  not  be  described  further  than  to  say  that 
even  after  evidence  had  been  obtained  with  great  diffi- 
culty which  proved  beyond  a  doubt  that  large  sums  had 
been  diverted  to  the  private  use  of  a  profligate  son,  the 
mother  refused  to  believe  that  it  was  possible  that'  her 
boy  could  prove  untrue,  and  ascribed  the  story  to  evU- 
minded  persons  reaching  for  his  downfaU.     This  same 
favoring  condition  of  confiding  ignorance  is  woven  about 
an  institution  whose  trustees,  highly  respected  but  neglect- 
ful of  duties,  permit  their  names  to  be  used  to  induce  the 
public  to  trust  those  who  would  subvert  its  functions. 

The  criminal  ingrate  who  sought  to  rob  his  mother  — 
the  mother  who  had  given  him  birth,  the  mother  who, 
while  she  sustained  him  and  watched  over  him  in  iUness 
had  learned  a  confidence  bom  of  her  own  unselfish  devo- 
tion that  now  shut  her  eyes  to  every  suggestion  of  possible 
wrong  in  the  boy  — the  traitorous,  insinuating  coward, 
who  was  successful  simply  because  he  was  trusted,  is 


8 


THE  GENUS  GRAFTER 


typical  of  many  an  institutional  trustee,  whose  acts  have 
The  grafter-  brought  certain  of  our  insurance  companies 
trurtee-ingur-  and  trust  Companies  into  disrepute  and  to 
an  extent  shaiien  the  confidence  of  the 
pubhc  m  mstitutions  of  saving  and  credit.  Yet  on  the 
mtegnty  of  these  both  our  race  and  national  prosperity 
depends.    Another  notable  aspect  of  this  situation  is, 

^^  /^'  ^    ''  ""^  °°*  ''■'1"^^  to  make  restitution. 
What  IS  still  more  significant,  the  one  who  was  guilty  of 
this  cnme  at  that  very  time  and  for  that  matter  still  is  a 
weU-known  trustee  of  concerns  dealing  with  trust  estates 
and  conductmg  business  on  pubUc  credit- a  man  who 
by  reason  of  the  reputation  of  his  father  and  of  the  promi- 
nence of  the  family  whom  he  had  robbed  as  well  as  on 
account  of  his  known  fortune,  is  held  out  to  the  world 
as  one  emmentiy  worthy  of  confidence.    Relying  on  his 
name,  patronage  is  asked  for  the  companies  with  which 
he  IS  associated.'    This  example  is  taken  as  a  type  of 
a  parasite  the  existence  of  which  conditions  at  present 
favor,  and  which  is  permitted  to  live  and  thrive  by  sappine 
at  the  vitals  of  institutions  of  guardianship  and  trust 

Applymg  the  institutional  principle  of  broad  coopera- 
tion to  busmess,  our  great  private  corporations  have  been 
evolved.  Recognizing  the  private  as  weU  as  the  social 
advantage  to  be  derived  from  uses  of  large  capital  in  tiie 
development  of  continental  resources  and  the  employ- 
ment of  labor,  our  laws  have  given  every  encouragement 
to  the  organization   of   stock    companies.    Those  who, 

I  Since  this  was  written  millions  of  doUare  have  been  lc«t  to  the  insti- 
tutions with  which  our  trustee  was  associated.  Resperted  grafters 
who  did  much  to  shal.e  the  foundations  of  credit,  temporarily  paralyze 
mdustry  throw  a  million  men  out  of  employment  and  cause  whole- 
sale distress  are  stiU  at  large,  many  of  them  not  even  detected  the 
machmery  of  justice  inert  to  mark  them  as  even  unworthy  of  further 


THE  GENUS  GRAFTER  , 

by  frugality  and  economy,  have  acquired  a  surplus  have 
The  grafter-      tound  mducement  to  invest  in  the  Dronrie 

trustee-incor-       tarv  cVigi-o<,  „f  *i.  .  P^opne- 

poratu.  tary  Shares  of  these  corporations  or  in  their 

♦    •  ^  .    .,.  ""l       ""^P"^  obUgations.    Those  who  are 
framed  to  the  business  find  opportunity  for  employme" 
of  their  services,  the  earnings  and  profits  being  dividS 
.TH°"V^''if°'?'''*^S  according  to  contracts  mutuS 
understood    by    mcorporators   and    employees.     BuHo 
carry  on  a  corporate  enterprise,  trustees  must  be  appobted 
who,  m  turn,  are  held  responsible  for  the  seleS  of 
officers  and  operatmg  agents.    Into  the  hands  o    thei 
teu  ted  representatives  and  agents  are  at  times  given 
mmions  of  resources  representing  the  combined  saE 
of  thousands  of  people  laboring  eamestiy,  honestiy  ^d 
intelhgendy  for  a  generation.    In  the  pro^r  u^  of 'thTse 
earnmgs  is  mvolved  the  destiny  of  many  ftouZds  mt; 
for   future   generations.    Though   honored   by   suSi   a 
magmficent  trust,  it  has  become  common  pLtlce  for 
corporate  trustees  to  use  their  positions  and  theTe^urce 
of  then-  msututions  for  private  gab.    There  are  not  aT^ 
m  fact,  whose  names  have  heretofore  been  held  upto 
the  youth  o   the  land  as  examples  of  honorable  succel 
whose  pnncipal  occupation  has  been  that  of  s^rSSTn 

ri'n TmS  °'  *^°-'""*'°°^  '^^^  -   themseTvTL:: 
given  smaU  pecuniary  rewards,  but  through  which  these 

^e  self-sacrificing,  patriotic  spirits,  by  m^ethods  kn^wn 
o  themselves,  have  managed  to  divert  immense  fortes 
to  then-  own  selfish  purposes.  Moreover,  ti,e  offiSrs 
who  have  been  chosen  by  these  directors  hive  conspired 
:il^ZrS^'  '-'-''^'  -'  commerciaT--;^ 

For  purposes  of  social  order  and  peaceful  employment 
a  pubhc  corporation  is  organized  with  functions  of  g^^"  ^ 
ment.    As  commumty  bterest  broadens,  as  sociefy  Sh 


10 


THE  GENUS  GRAFTER 


common  ends  and  purposes  expands,  occupying  large 
terntory,  as  social  advantage  and  convenience  bring  indi- 
viduals together  into  specialized  groups  at  working  centres 

Grafter-trustee.  ^^^^  ^'^'^^,^  ^^  Corporate  activity  becomes 
poiiticus  °^ore  complex,  certain  needs  of  such  a  so- 

ciety  require  that  this  pubUc  corporation 
representmg  common  welfare  shaU  take  over  the  exercise 
of  functions  of  business  which  have  to  do  with  community 
service.  In  this  poHtical  corporation  is  represented  the 
highest  type  of  social  organization.  It  stands  for  the  high- 
est and  the  broadest  social  concepts;  its  development  has 
been  in  response  to  common  inspiration;  it  is  the  ideal  of 
common  welfare  to  which  individual  weU-being  must  be 
subordinated,  the  organic  motive  to  which  is  found  in  the 
impulse  of  patriotism. 

In  a  democratic  society  political  organization  takes  its 
form  from  its  democratic  prototype,  the  private  corpora- 
tion.   This,   too,   must  act   through   agents  chosen  by 
citizens  m  whose  behalf  the  trusts  reposed  in  them  axe 
to  be  exercised.    For  the  benefit  of  the  persons  residing 
withm  the  temtoral  jurisdiction  of  the  city,  large  funds 
a^  contributed  in  the  form  of  revenues.    In  the  hands  of 
officers  these  funds  are  trust  funds.    Supplies  are  purchased. 
These  supphes  are  purchased  for  the  purpose  of  promoting 
the  pubhc  welfare  and  are  to  be  strictly  accounted  for 
by  their  custodians.    Large  sums  are  paid  for  labor  and 
personal  service.    Persons  receiving  salaries  and  wages 
from  pubhc  funds  and  who  are  custodians  for  properties 
stores,  and  equipment,  have  in  their  care  the  health  and 
the  happmess  of  the  community.    These  things  are  placed 
in  the  hands  of  municipal  officers  and  employees  because 
they   are   trusted.    Every   dollar   wasted,    every   doUar 
which  goes  to  the  one  who  has  a  "pull,"  every  supply  or 
matenal  diverted  from  its  proper  pubUc  use,  eveiy  hour 


THE  GENUS  GRAFTER  n 

stolen  from  the  municipaUty  by  an  employee,  means  more 
sickness,  greater  misery  and  poverty,  fewer  transportation 
facilities,  lack  of  protection  to  the  weak,  lack  of  education 
to  the  young,  loss  of  opportunity  to  the  individual.  Be- 
Poiiticai  graft-  ^^^^e  he  is  trusted  the  grafter  saps  the  sub- 
ing  less  profit-    Stance  of  the  community.     By  using  a  oart 

able  than  #%f  u:^    :ii       j.j.  •        /  ^       f**^*- 

private  ^*  ^^  lU-gotten  gams  for  purposes  of  dis- 

play, he  poses  before  the  community  as  the 
conservator  of  order,  the  guardian  of  pubUc  health,  the 
monitor  of  pubUc  education  and  recreation,  and  the  con- 
troUer  of  public  convenience;  he  then  asks  for  a  vote  of 
confidence  that  he  may  again  be  placed  in  a  position  to 
abuse  his  trust.  In  these  several  capacities  agents  of 
government  must  also  say  how  private  business  shaU  be 
conducted,  and  in  the  exercise  of  this  power  they  are  given 
charge  of  the  dispensing  of  privUeges  in  the  nature  of 
monopoHes  by  the  use  of  which  one  set  of  private  indi- 
viduals and  corporations  may  be  enriched,  whUe  others 
may  be  oppressed  or  impoverished.  It  is  to  this  form  of 
grafting  that  public  attention  has  been  especiaUy  directed. 

THE   GRAFTER   EXISTS   BECAUSE   CONDITIONS   ARE   FAVOR- 
ABLE  TO  HIS  EXISTENCE 

In  motive  the  grafter  is  anti-democratic  and  anti-social 
So  far  as  he  himself  is  concerned  he  seeks  to  pervert  both 
the  private  and  the  pubhc  cooperative  social  plan;  he  is 
tru^y  indmduaHstic  and  selfish.  Though  anti-democratic 
and  anti-social  m  motive  he  is  not  anarchistic  —  he  would 
not  destroy  social  organization  more  than  the  Uchen 
would  destroy  the  oak.  Organized  society  is  his  oppor- 
tunity; he  recognizes  it  as  his  "natural  resource."  Com- 
plexity of  organization,  comprehensiveness  of  modem 
^oup  Ufe  and  group  activity,  is  the  condition  favorable. 
As  the  great  awkward  draft  horse,  when  harnessed  to  a 


IS 


THE  GENUS  GRAFTER 


plow,  is  driven  frantic  by  the  midget  fly,  as  it  is  the  awk 
wardness  which  comes  from  size  acquir^  th  ough  bS" 

render  him  subservient  to  social  cooperative  ends  which 

(natura^^  or  corporate)  m  modem  social  organization  n„ 
which  the  grafter  feeds.  The  larger  and  Tre  compk; 
An  uninformed  ^^^  social  Organization,  the  greater  the  hppH 

t-nity      "^     ^'^l  the  organization  become  more  com- 
piex^    Without  mcreased  knowledee  of  it« 

Xkh  .  l.'^?  ^.'/^f  ^^'^  ""  "^  ^^^  consideration  wUh 
which  a  shepherd  looks  after  the  weakling  which  later  he 

public  should  be  informed  concerning  the  acts  of  its  aeent. 
and  trustees;  he  would  preserve  no  evidence  by  whTch 
the  law  of  trusteeship  may  be  enforced.  Evident? 
feared  by  him  as  the  Indian  fears  famine. 

leadmg.    We  have  erred  m  not  treating  him  as  a  creature 
of  environment.    If  there  is  ignorance  to  be  dealt  w^ 

wuh  those  who  are  responsible  for  his  training.     The 
street  beggar  or  organ-grinder  is  not  to  be  blamed   but 
^hose  who  grant  the  permission  and  offer  the  inducemen 
to  beg.    In  this  mstance  we  have  erred  by  bringing  into 


THE  GENUS  GRAFTER  13 

description  terms  which  import  responsibility.    We  should 
be  more  scientific.    Discussing  the  grafter  as  a  social  para- 
site, we  should  hold  more  closely  to  the  object  of  inquiry. 
Adaptation,  of    ^^^^^^ificaUy,    we    know    no    right    except 
the  species         f^^h,  we  know  no  wrong  but  falsehood  and 
ignorance.    The  grafter  is  immoral,  or  non- 
moral,  or  anti-moral  only  so  far  as  we  consider  him  social. 
Being  anti-social,  why  should  our  estimate  be  based  on 
assumptions  of  morality?    To  know  the  grafter  as  such, 
we  must  not  look  at  him  through  the  moral  code  as  a 
glass,  nor  weigh  him  in  the  balance  of  justice.    To  prop- 
erly describe  him  we  must  first  isolate  the  parasite  from 
his  environment,  then  consider  hun  in  his  relation  to  it. 
The  fly  is  not  to  be  regarded  as  a  part  of  the  horse,  nor 
the  scale  louse  as  a  part  of  the  tree.    Looking  upon  the 
grafter  as  a  grafter,  we  can  have  for  him  nothing  but 
highest  praise.     He  has  justified  his  right  to  survive- 
he  has  not  only  adapted  himself  to  his  environment  but' 
human-Uke,  he  has  in  many  instances  changed  his  environ- 
ment m  such  a  way  as  to  make  it  contribute  to  his  own 
personal  welfare. 

The  common  grafter,  whether  of  the  species  trustee  or 
of  the  several  varieties  vendor,  has  simply  appropriated 
to  his  own  use  and  benefit  the  rich,  institutional  resources 
about  him.    Like  the  pioneer,  he  saw  before  him  native 
resources  awaiting  only  the  assertion  of  rights  of  proprie- 
The  modifica-     torship.     Our  grafter  kings  and  lords,  our 
tion^of  condi-     enfranchised  monopoHsts  and   institutional 
infidels,  have  done  more;  they  have  shaped 
the  institution  themselves  in  such  a  manner  as  to  bring 
into  their  service  a  wider  range  of  resources  and  a  larger 
cooperative  group;  they  have  adapted  the  institution  to 
their  own  ends  that  they  might  better  support  themselves, 
their  children,  and  their  chUdren^s  chUdren  after  them 


M  I, 


14 


THE  GENUS  GRAFTER 


THE  GENUS  GRAFTER 


15 


I 


THE  CONDITION  FAVORABLE  TO  GRAFTING  IS  LACK  OF  IN- 
FORMATION NECESSARY  TO   INSTITUTIONAL  CONTROL 

Moral  considerations  take  us  away  from  the  parasite 
to  the  institution  on  which  it  feeds.     Socially,  we  are 
primarily  interested  in  the  question  of  the  moral  respon- 
sibility for  the  existence  of  the  pest.    It  is  not  the  crea- 
ture that  is  to  be  charged  with  immorality  for  adapting 
himself  to  conditions  which  are  favorable  to  his  growth; 
rather  the  responsibility  Ues  with  those  who  may  be  held 
chargeable  with  those  conditions.     If,  for  example,  the 
mother  trains  her  son  to  believe  that  he  is  not  to  be  con- 
trolled by  social  rule;  that  he  is  above  society;  that  he  is 
better  than  his  sister;  that  he  is  made  of  superior  clay;  if 
he  has  known  no  responsibility,  no  rule  other  than  the  sat- 
isfaction of  his  own  desire;  that  he  is  not  held  to  account; 
to  whom  should  she  complain  if  this  son  maltreats  her, 
robs  her,  and  finally,  when  the  burden  of  protection  and 
support  may  fall  on  him,  casts  her  out  to  be  cared  for  by 
the  society  whose  welfare  she  had  violated.     If  a  society 
organized  by  fathers  to  comfort  the  bereaved  and  sup- 
port the  dependent  has  carelessly  placed  large  resources 
in  the  hands  of  trustees  for  safe-keeping  without  requir- 
mg  report  or  account,  and  without  requiring  the  preser- 
vation of  evidence  by  which  responsibilities  may  be  fixed, 
if  under  such  circumstances  these  trustees  shall  prove 
untrue  to  their  trust  and  to  the  temptation  held  out  to 
them  to  become  dishonest  —  and  if  on  this  account  so- 
ciety shall  be  charged  with  burdens  of  support  which 
should  have  been  met  by  natural  protectors  —  shall  we 
condemn  the  grafter  ?    Or  is  the  responsibility  to  be  placed 
on  the  society  itself  which  created  and  maintained  the 
conditions  favorable  to  graft?    Is  the  leach  to  be  found 
guilty  of  breach  of  confidence  for  feeding  on  the  water 


rat?  or  is  the  parasite  seed,  cast  by  friendly  breezes  in 
the  crevice  of  the  oak,  to  be  condemned  for  sending  its 
roots  into  the  rich  mould  ?  Not  the  Aphis  that  has  stripped 
the  vine,  but  the  gardener  who  permits  the  pest  to  thrive 
in  his  vineyard!  By  providing  conditions  favorable  to 
the  growth  of  new  swarms  of  pests  he  endangers  the  plants 
and  fruit  of  his  more  intelligent  and  industrious  neigh- 
bors. These  are  the  persons  who  are  to  be  held  at  fault, 
and  it  is  through  forms  of  publicity  by  means  of  which 
responsibility  may  be  located  where  it  belongs  that  the 
application  of  effective  remedy  for  graft  is  made  possible. 

THE  LIMIT  OF  CONTROL  THE  LIMIT  OF  SOCLAL 

ORGANIZATION 

The  limit  of  social  organization  is  the  limit  of  human 
ingenuity  to  devise  systems  of  inspection  and  of  adminis- 
trative account  and  statistics,  which  may  provide  the  means 
for  intelligent  oflScial  direction  and  for  comprehensive  re- 
ports to  the  proprietor,  the  stockholder,  or  citizen.  With 
such  controlling  devices  adapted  to  an  institution's  con- 
trolling needs,  the  power  of  cooperation  is  limited  only 
to  the  advantages  to  be  gained  through  combining  human 
activity  and  the  power  of  the  human  mind  to  think,  to 
expand,  to  invent  and  to  execute.  Administratively,  the 
power  to  exact  individual  responsibility  is  as  great  as 
the  power  to  command  the  forces  which  may  be  utilized  for 
common  ends.  It  is  to  the  perfecting  of  such  devices  for 
controlling  intelligence  that  we  must  look  to  rid  ourselves 
of  the  ignorance  and  institutional  irresponsibility  which 
have  been  the  conditions  favorable  to  the  development  of 
the  grafter.  When  society  shall  have  possessed  itself  of 
adequate  means  for  currently  and  accurately  informing 
itself  about  its  own  affairs  the  genus-grafter  will  be  num- 
bered among  the  occasional  and  harmless  parasites. 


PREMIUM  PUT  ON  MUNICIPAL  GRAFT        17 


\ 

I 


CHAPTER  II 

How  Municipalities  put  a  Premium  on  Graft* 

Speaking  on  the  question  of  the  social  evil,  one  of  the 
national  leaders  in  charity  work  announced  that  he  was 
not  interested  in  the  question  whose  daughter  it  is,  or 
how  many  there  are  at  the  present  moment  walking  the 
streets,  so  much  as  he  was  in  the  social  and  economic 
conditions  which  caused  women  to  choose  this  method 
of  obtaining  a  livelihood  rather  than  suffer  the  hardships 
and  endure  the  privations  which  virtue,  morahty,  and 
social  convention  require.  Given,  to  an  intelligent, 
comely  woman,  a  choice  between  ten  or  twelve  hours  per 
day  for  fifty-two  weeks  per  year  on  her  knees,  in  rags  on 
a  hard,  wet  floor  as  a  common  scrub  and  a  social  outcast, 
with  a  mere  pittance  at  night  for  her  care  and  pains  — 
given  the  choice  between  this  and  an  opportunity  to  dress 
The  social  in-  Well,  to  associate  with  men  and  women  of 
ducement  to  inteUigence,  to  become  a  mistress  in  beauti- 
immoraiity  £^  private  apartments,  with  servants  to  do 
her  bidding  and  with  every  want  supplied  (the  only  price 
being  that  she  shall  forsake  the  code  of  conventions  which 
has  already  marked  her  as  an  outcast  because  she  works) 
—  and  which  career  will  she  choose  ?  Those  who  despond 
of  better  conditions  may  also  ask  this  question.  Instead 
of  hurling  its  scorching  moral  thimderbolts  against  the 
unfortunate  who  chooses  the  easier  way,  should  not 
society  castigate  itself  ?  We  may  at  least  inquire  what  it  is 

>  Leslie's  Weekly,  May  4,  1905. 
16 


in  the  present  order  of  things  that  makes  the  path  of 
virtue  and  honor  so  difficult  for  those  who  honestly  toil 
in  our  service.  May  we  hope  to  repress  any  evil  so  long 
as  we  are  causing  two  persons  to  break  down  the  barriers 
that  society  has  thrown  around  itself  for  its  own  protec- 
tion to  each  one  restrained  by  forcible  detention  or  benevo- 
lent asylum? 

We  are  each  members  or  stockholders  in  a  corporation, 
the  purpose  of  which  is  to  promote  and  protect  the  com- 
mon welfare.  Our  Steffinses,  our  Folks,  our  La  Follettes, 
our  officers  of  detection  and  prosecution,  our  news 
agencies,  tell  us  that  m  conducting  the  business  of  this 
corporation  there  is  graft.  The  common  sense  of  the 
The  institu-  Community  corroborates  the  conclusion,  but 
tionai  induce-  this  same  common  sense  has  not  divined 
ment  to  gr  t  ^^le  underlying  cause  nor  suggested  an  ade- 
quate remedy.  It  is  the  common  habit  of  the  time  for 
public-spirited  men  to  hold  up  their  hands  in  reproach, 
to  make  a  few  spasmodic  efforts  to  punish  individual 
grafters,  then  to  resign  themselves  to  what  may  be  called 
the  bUnd  workings  of  political  fate.  The  significant  fact 
is  this:  that  as  citizen-proprietors  of  this  corporation, 
we  continue  to  employ  a  system  which  leaves  but  one  of 
two  ways  open  — either  that  we  ourselves  must  go  the 
"easier  way"  and  forsake  political  virtue,  or  play  the 
r61e  of  political  dependence  on  those  whom  we  employ 
and  do  the  bidding  of  a  corrupt  organization  of  our  own 
servants  — the  grafters.  The  question  for  us  to  ask  is 
not,  who  are  the  mdividual  grafters  or  who  are  at  the 
moment  robbing  the  public  and  degrading  citizenship  to 
the  level  of  brigandage  and  criminal  association?  Rather 
this  —  Why  should  we  retain  an  administrative  system 
which  tends  to  encourage  this  sort  of  traffic  and  associa- 
tion among  our  public  servants? 
3 


I 


I 


18        PREMIUM  PUT  ON  MUNICIPAL  GRAFT 

Before  answering  the  question  as  to  "  How  our  munici- 
palities put  a  premium  on  graft,"  let  us  go  further  with 
the  question  as  to  why  dishonesty  exists?  Why  let  us 
ask  —  why  it  is  that  private  servants  become  dishonest. 
Why  servants  You  are  about  to  open  a  private  estabUsh- 
become  dis-  ment.  To  this  end  a  good  servant  is 
°°®**  desired.    A  neighbor  recommends  one  that 

for  twenty  years  has  been  trit^l  and  found  true.  When 
he  engages  himself,  you  say, ''  1  wish  to  be  entirely  relieved 
of  homely  cares;  here  are  the  keys  to  the  silver-chest,  to 
the  closet,  to  the  wardrobe;  you  look  after  these;  do  the 
buying,  run  the  house,  and  I  will  furnish  the  money."  On 
administering  your  household  you  take  no  inventories, 
require  no  statements,  audit  no  bills,  exercise  no  super- 
vision, make  no  inspection  of  the  work.  If,  after  a  few 
months,  you  find  that  John  has  not  Hved  up  to  his  old- 
time  reputation,  whose  fault  will  it  be?  Is  not  some  of 
the  blame  to  be  attached  to  yourself?  But  again  let  us 
go  further.  Suppose  that  John  is  only  one  of  a  large 
retinue.  Primarily  an  honest  and  intelligent  man!  He 
comes  to  you  with  the  best  of  intentions.  He  finds,  how- 
ever, that  those  around  him  are  careless  and  faithless. 
When  he  pHes  the  Golden  Rule  they  stand  by  and  jeer. 
With  his  fellows  he  finds  nothing  but  discouragement 
to  honest  eflfort  and  honest  dealing.  You  keep  no  record 
of  his  doings  and  give  him  no  credit  for  his  pains.  When 
question  is  raised  concerning  any  transaction  that  may 
come  to  your  notice,  adverse  opinion  among  his  fellows 
and  false  report  causes  suspicion  to  rest  on  him  for  the 
perfidy  of  a  band  of  thieves  and  loafers  that  you  have 
trained  in  the  ways  of  deception.  So  long  as  your  present 
administrative  methods  continue,  his  only  protection 
must  lie  in  the  friendly  offices  and  in  the  good  opinion 
of  his  fellow  servants  —  his  employer  affords  him  none. 


PREMIUM  PUT  ON  MUNICIPAL  GRAFF        19 

If,  under  such  circumstances,  John  becomes  degraded, 
what  is  the  remedy?  Will  dishonesty  be  rooted  out  of 
your  service  by  discharging  or  punishing  John?  Will 
reform  be  instituted  and  change  of  personnel  when  all 
of  the  conditions  remain  favorable  to  dishonesty  and 
unfavorable  to  integrity  and  efficiency  of  service? 

In  private  business  circles  the  complamt  is  heard  that 
employees  cannot  be  trusted  as  in  the  good  old  days  — 
that  men  are  less  upright.  Who  says  this  fails  to  grasp 
the  meaning  of  modern  commercial  and  industrial  progress 
Dishonesty  wiu  and  Conditions.  Not  that  men  are  less 
continue  if  en-  honest,  but  that  more  is  required  of  them, 
courage  Under   the  old   regime,   every   transaction 

went  on  in  plain  view  of  the  proprietor,  or,  if  not  in  his 
presence,  he  was  so  far  familiar  with  his  little  stock  in 
trade  that  he  would  at  once  detect  a  loss.  The  system 
was  one  of  close  and  constant  inspection  and  ''personal 
count."  Business  grew;  it  came  to  be  too  large  for  the 
system.  The  "personal  count"  of  the  proprietor  was 
no  longer  possible  and  his  direct  supervision  of  each 
transaction  was  lost.  When  a  private  undertaking  has 
reached  this  phase  of  development,  then  one  of  two 
results  must  follow  —  either  the  "personal  count"  must 
be  supplemented  by  a  system  of  "record  account"  that 
will  reflect  the  acts  and  responsibiUty  of  each  employee 
and  protect  him  agamst  the  dishonesty  of  others,  or  the 
business  itself  will  soon  become  numbered  among  the 
scuttled  and  stranded  derelicts.  If  a  merchant  fails  to 
encourage  honesty  and  efficiency  in  his  service,  and  if 
perchance  his  employees  become  careless  of  his  welfare 
when  he  has  shown  himself  indifferent  to  theirs,  he  may 
well  reflect  that  the  times  are  not  what  they  were  when 
the  affairs  of  each  man  and  the  acts  of  every  citizen  were 
recorded  m  the  intelligence  of  the  whole  community. 


t    t  !' 


«0       PREMIUM  PUT  ON  MUNICIPAL  GRAFT 

We  turn  now  to  municipal  affairs.  Yes,  there  is  graft. 
But  who  is  primarily  responsible  for  it?  Does  a  banker 
condemn  society  for  the  loss  of  a  bag  of  gold  that  has  been 
carelessly  left  over  night  on  the  sidewalk?  Not  society, 
The  grafter  but  the  teller  or  clerk  who  in  the  "record 
WiL*^^*  account"  is  found  short,  and  whose  duty 

■"  it  was  to  put  that  particular  bag  of  coin  into 

safe-keeping!  The  stockholder  of  the  bank  may  not 
witness  a  single  detail  of  business  transacted  by  his  in- 
stitution. He  may  not  count  the  cash  nor  thumb  over 
the  securities,  but  he  knows  that  every  coin,  security, 
voucher,  and  paper  is  accounted  for.  How?  By  having 
a  system  that  so  thoroughly  records  the  acts  of  every  ser- 
vant that  "the  very  hairs  of  his  head  are  all  numbered," 
not  only  that  no  harm  may  come  to  the  stockholder,  but 
that  no  harm  may  come  to  his  employee. 

In  government  we  have  thrown  safeguards  to  the 
winds.  Yes,  the  treasury  has  come  to  be  protected 
against  direct  robbery;  generally  speaking,  disbursing 
officers  and  clerks  are  true  to  their  trust;  we  have  given 
to  the  public  and  to  tellers  of  cash  adequate  security  by 
installing  a  system  of  strict  "record  account"  for  funds 
The  community  ^^  ^^r  receipts  and  disbursements.  But 
at  fault  in  not  in  every  public  contracting  relation,  in  every 
honi^^  position  requiring   the  exercise  of  official 

discretion,  in  every  admmistrative  relation 
having  to  do  with  economy  either  of  service  or  of  public 
resource,  we  are  without  system  and  without  "record 
account"  which  will  aid  our  responsible  agents  in  the 
direction  of  our  afifairs,  protect  them  against  infidelity 
from  within  or  piratical  enterprise  from  without.  Such 
graft  as  exists  is  the  direct  result  of  the  system  by  which 
we  encourage  our  public  agents  to  become  dishonest, 
and  discourage  every  efiFort  and  ambition  to  build  up  in 


PREMIUM  PUT  ON  MUNICIPAL  GRAFT        21 

our  public  institutions  an  esprit  de  corps  and  a  morale 
that  will  hold  the  object  of  their  creation  (pubUc  welfare) 
above  the  claims  of  individual  greed. 

Even  in  the  best  organized  and  best  equipped  munici- 
palities there  seems  to  be  a  lack  of  information  which  either 
will  aid  the  officer  in  the  performance  of  duty  or  enlighten 
the  citizen  (the  stockholder)  as  to  the  doings  of  his  agents. 
A  few  American  cities  have  installed  systems  of  "record 
account"  from  which  this  information  may  be  had,  but, 
generally  speaking,  in  these  cities,  little  use  is  made  of 
the  system  other  than  to  strengthen  financial  control. 
Even  the  devices  which  have  been  installed  in  response 
to  a  popular  uprising  or  a  spasm  of  civil  virtue  have  been 
left  for  execution  to  those  who  have  been  trained  to  de- 
feat all  efforts  directed  toward  control.  The  citizen  pro- 
prietor through  whose  effort  the  new  method  has  been 
installed  has  failed  to  inform  himself  with  respect  to  the 
integrity  of  its  use  or  even  to  utilize  the  data  obtained  for 
civil  ends.  The  result  is  degeneration  of  the  system 
installed  to  the  old  level  or  as  nearly  to  this  plane  as  is 
considered  safe. 

Under  the  best  of  systems  of  government  accounting 
the  so-called  reform  municipal  officer  as  well  as  the  citizen 
has  failed  to  appreciate  the  difference  between  "financial 
control"  and  "general  administrative  control."  The  first 
has  to  do  with  matters  of  budgetary  estimates,  revenue 
provisions,  protection  of  funds,  and  the  like.  These 
matters  are  for  the  council,  the  finance  committee,  and 
the  comptroller.  The  direction  to  be  given  to  the  many 
departments,  the  service  to  be  rendered  to  the  public, 
matters  of  municipal  economy  and  efficiency,  all  of  the 
operative  activities,  require  effective  organization,  intelli- 
gent direction,  constant  supervision,  rigid  mspection,  and 
honest  endeavor  on  the  part  of  every  officer  and  employee 


22       PREMIUM  PUT  ON  MUNICIPAL  GRAFT 

in  the  service.    These  are  the  functions  with  which  the 
mayor  and  the  chiefs  of  departments  are  charged. 

How  may  the  mayor  know  whether  the  chief  of  the 
police  department  is  competent  to  command  the  forces 
on  which  we  depend  for  protection,  unless  he  may  have 
a  complete  record  of  the  operations  of  the  department 
laid  before  him  for  consideration,  and  standards  of  com- 
parison set  up  by  which  competency  may  b(^  gauged? 
How  may  the  superintendent  of  streets  know  whether 
those  in  his  service  are  giving  honest  return  in  service 
rendered  ?  How  may  we  as  citizens  know  whetlier  we  are 
paying  too  much  for  light,  for  paving,  for  water,  for 
municipal  supplies?  So  long  as  questions  of  this  kind 
remain  imanswered,  so  long  as  we  have  no  meth(xi  estab- 
lished by  means  of  which  this  information  may  be  cor- 
rectly and  regularly  brought  before  us,  so  long  as  we  have 
no  exact  basis  for  judgment  as  to  competency  or  mtegrity, 
just  so  long  will  we  be  putting  a  premium  on  official  in- 
competency and  public  graft.  What  we  need  is  a  thorough 
system  of  municipal  ''cost  keeping"  together  with  a  com- 
prehensive system  of  centrally  controlled  **  administra- 
tive accounts."  More  than  this:  These  records  and  re- 
sults should  be  translated  into  simple,  plain  EngUsh  and 
currently  reported  to  citizen-stockholders  of  the  cor- 
poration organized  to  protect  and  foster  the  common 
weal.  Until  this  is  done  we  as  citizens  are  putting  a 
premium  on  graft,  we  are  providing  the  conditions  for  a 
constantly  increasing  infection  that  must  corrupt,  degrade, 
and  ultimately  destroy  the  ability  of  the  people  to 
cooperate  for  their  own  protection  and  welfare. 

HOW  THE  GRAFTER  MAY   BE  EXTERMINATED 

The  rule  of  right  when  applied  to  the  elimination  of 
infectious  disease  proceeds  from  social  necessity — a  neces- 


i 


I 


PREMIUM  PUT  ON  MUNICIPAL  GRAFT       23 

sity  which  is  itself  a  condition  precedent  to  the  extermina- 
tion of  the  disease-producing  germ.  Bacteriological  ex- 
periment by  analogy  teaches  us  that  we  may  not  protect 
the  body  politic  from  parasitic  growth  by  making  war 
Hot  by  making  ^^  ^^^  individual  offender  or  on  a  particular 
war  on  the  colony  of  grafters.  The  only  social  reason 
individual  for  applying  a  germicide  to  a  particular 

^    *'  germ  or  ingrafted  colony  of  germs  is  to  save 

the  one  who  has  fallen  a  helpless  victim  of  social  neglect. 
Social  protection  must  look  to  broader  results  —  the  ex- 
termination of  the  whole  community  of  parasites  or  the 
rendering  of  them  weak  and  harmless  if  perchance  any  of 
them  may  find  lodgment  in  the  system  of  the  individual. 

A  crowded  city  cannot  protect  itself  from  the  scourge 
of  typhoid  by  perfecting  methods  of  medical  or  clinical 
treatment  to  be  given  to  those  who  have  already  been 
poisoned  by  the  germ.  Medicine  may  alleviate  suffering 
and  prevent  the  death  of  the  individual  who  has  been 
poisoned.  The  maintenance  of  the  free  hospital  is  in 
recognition  of  duty  toward  him  who  has  been  rendered 
incapable  of  protecting  himself  in  a  society  that  breeds 
infection;  but  science  has  long  since  demonstrated  that 
Must  come  "^  ^^^S  ^  conditions  prevail  favorable  to 
through  inteUi-  typhoid  culture  medical  treatment  will  not 
gent  institu-  suffice.  Through  scourges  of  ''  Black 
Death,"  Asiatic  cholera,  and  yellow  fever 
we  have  learned  that  the  only  way  to  successfully  pro- 
tect society  is  by  enforcing  a  method  of  living  which  will 
protect  the  individual  from  disease,  —  i.e.,  the  remedy  of 
intelligence  is  sanitation  and  disinfection  as  a  means  of 
controlling  the  conditions  favoring  germ  culture.  The 
remedy  for  graft  must  have  to  do  with  institutional  methods, 
rather  than  with  the  treatment  of  individual  cases.  The 
method  must  be  one  of  intelligent  control  over  the  func- 


84       PREMIUM  PUT  ON  MUNICIPAL  GRABT 

tions  of  public  corporate  activity,  and  the  enforcement 
of  responsibility  for  its  proper  direction. 

THE   MEANS   OF    OBTAINING    INSTITUTIONAL    CONTROL 

The  larger  the  institution  and  the  richer  the  institu- 
tional returns  the  greater  has  been  the  inducement  to 
graft.  As  before  suggested,  the  social  advantage  to  be 
attained  through  combination  has  given  rise  to  corporate 
privilege,  the  use  of  which  for  common  ends  is  dependent 
on  corporate  trustees  and  agents.  Intelligent  control  can 
come  only  through  a  complete  understanding  of  the  facts. 
There  has  been  a  rapid  development  in  institutional  re- 
sponsibiUty  and  trust  relations  without  a  corresponding 
development  of  the  means  of  institutional  intelligence 
whereby  the  public  servant  and  the  trusted  employee  may 
be  held  to  strict  account.  As  institutional  affairs  have 
become  too  large  for  personal  inspection,  for  lack  of  evi- 
dence direct  control  over  integrity  and  administrative 
efficiency  has  been  lost.  To  cope  with  this  situation  it  is 
necessary  that  improved  methods  of  administrative 
accounting  may  be  devised,  —  methods  of  obtaining 
currently  information  as  to  the  presence  of  conditions 
favorable  to  graft  — that  the  institutional  parasite  may 
be  rendered  incapable  of  harm.  On  such  conditions 
must  depend  our  ability  still  farther  to  expand  industrial, 
commercial,  and  other  forms  of  institutional  co6peration 
without  destroying  the  end  or  purpose  for  which  this 
cooperation  is  sought. 


CHAPTER  III 
Who  Pays  for  Graft  and  Inefficient  Government?' 

It  is  commonly  assumed  that  the  taxpayer  pays  for 
graft  and  inefficient  government.  This  fallacy  has  been 
skilfully  used  and  taught  by  many  a  self-seeking  dema- 
gogue urging  support  for  an  officer  or  for  an  organization 
which  has  abused  public  trust,  wasted  public  funds,  and 
misdirected  the  energies  of  government  in  granting  priv- 
ileges and  monopolies  for  their  own  enrichment.  What 
is  more  to  the  point,  in  provoking  class  feeling,  in  stim- 
ulating prejudice,  the  argument  has  been 
suction  **"  .  successful.  Through  dispensing  a  small  per- 
centage of  the  funds  subverted,  as  gratuities 
to  the  unfortunate  and  as  evidence  of  personal  interest 
in  their  welfare,  the  grafter  has  succeeded  in  holding  him- 
self up  in  favorable  contrast  with  the  man  of  wealth. 
This  properly  prepares  the  mind  of  the  victim  for  the 
conclusion  that  the  man  of  wealth  and  not  himself  is  the 
one  who  suffers  from  political  infidelity.  In  fact  it  has 
come  to  be  believed  by  a  considerable  portion  of  the 
community  that  it  is  virtue  rather  than  vice  to  steal 
from  the  government.  Even  the  courts  seeking  popular 
applause  have  refused  to  consider  such  cases  as  stealing 
water  and  conversion  of  goods  belonging  to  a  munici- 
pality —  they  have  gone  so  far  as  to  reprimand  oflScers 
who  have  placed  public  thieves  under  arrest. 

Democratic  government  is  the  agency  of  the  common 

*  New  York  Sunday  World,  November  29,  1908. 

25 


26 


WHO  PAYS  FOR  GRAFT  AND  WASTE 


man.  It  is  the  instrument  created  for  the  protection  of 
the  individual  against  social  and  economic  conditions 
which,  without  this  protection,  would  threaten  his  wel- 
fare—  possibly  his  existence.  Anything  which  tends  to 
undermine  government  support,  subvert  its  resources, 
or  render  its  service  inefficient,  deprives  the  citizen  of 
the  protection  and  advantage  which  otherwise  he  might 
have.  The  man  who  pays  taxes  does  not  pay  for  bad 
Democratic  government;  he  pays  for  good  government, 
government  He  pays  for  protection  to  the  commimity; 
agent  of  the      for  the  protection  of  each  member  alike, 

common  man  i     ^i        >  ■n- 

whether  taxpayer  or  non-taxpayer.  If  gov- 
ernment is  not  efficient,  it  is  not  the  taxpayer  as  taxpayer 
who  suffers,  but  each  individual  member  of  the  commun- 
ity as  the  beneficiary  of  public  funds. 

The  subversion  of  revenues,  the  taking  of  public  goods 
or  the  theft  of  time  and  service  which  is  paid  for  by  the 
municipality  is  a  direct  loss  to  the  weak  rather  than  to 
the  strong.  This  is  necessarily  so  for  the  reason  that 
persons  of  wealth  can  protect  themselves;  they  have  the 
means  to  provide  themselves  with  wholesome  food  and 
wholesome  surroundings.  For  these,  persons  less  for- 
timately  situated  must  depend  on  government  regulation 
and  control.  Their  hope  lies  in  efficient  government  and 
the  most  painstaking  care  in  the  application  of  public 
resources  to  public  use. 

Even  considered  in  its  purely  business  aspects,  bad  gov- 
ernment is  relatively  of  unimportance  to  the  taxpayer 
as  a  taxpayer.  Most  of  the  taxes  are  taxes  on  real  es- 
tate, and  taxes  on  real  estate  are  usually  shifted  to  the 
consumer.  Assuming  that  land  taxes  are  equitably 
distributed  —  with  increased  taxes  come  increased  rents; 
with  increased  rents  come  increases  in  the  retail  prices 
of  goods;  increased  prices  are  paid  by  those  whose  com- 


WHO  PAYS  FOR  GRAFT  AND  WASTE 


«7 


fort  is  to  be  served.  Generally  speaking  it  is  found  that 
retail  prices  of  goods  vary  directly  as  do  rents  and  taxes. 
Increased  cost  of  government,  therefore,  ultimately  falls 
on  the  consumer  rather  than  the  taxpayer,  for  the  reason 
that  the  ratio  of  consumption  to  income  decreases  as  indi- 
vidual wealth  increases. 

But  to  get  the  matter  clearly  before  us,  we  must  con- 
sider another  side  of  the  problem.  Aside  from  the  in- 
creased cost  of  Hving  which  increased  taxes  entail,  what 
is  lost  by  bad  government  and  whose  loss  is  it?  What 
is  the  loss  entailed  on  the  individual  who  while  a  child 
suffered  from  tuberculosis  of  the  spine  and  is  left  a  cripple 
for  life  ?  What  is  the  loss  entailed  on  a  man,  his  family, 
the  community  by  virtue  of  the  fact  that  when  a  boy 
he  had  no  educational  advantages  —  that  he  is  unable 
to  read  and  write?  What  is  the  loss  entailed  on  the 
Waste  and  loss  individual  who  in  youth  has  been  forced 
the  loss  of  the  to  live  among  the  inmioral  and  criminal 
common  man  ^^^  ^j^^  j^^  become  a  pervert  or  a  social 
and  political  outcast?  What  is  the  distress  entailed 
upon  a  family  through  sickness  and  death  from  pre- 
ventable diseases?  What  discomfort,  loss  of  vitality, 
and  lowered  earning  power  result  from  living  in  unsani- 
tary tenements,  in  dark  rooms,  in  crowded  and  badly 
ventilated  apartments?  What  happiness  is  destroyed 
through  fear  of  violence  or  lack  of  police  protection  in 
districts  where  the  vicious  live  ?  Who  pays  for  the  babies 
who  die  from  infected  milk  ?  Who  suffer  from  the  germ- 
laden  filth  of  the  streets?  Who  are  the  ones  who  are  the 
victims  of  the  gambler,  the  seducer,  the  vendor  of  adul- 
terated foods? 

From  any  point  of  view,  it  is  not  the  one  who  direcdy 
pays  the  taxes  who  pays  either  for  the  direct  or  indirect 
cost  of  waste  of  public  funds  or  inefficiency  of  service. 


WHO  PAYS  FOR  GRAFT  AND  WASTE 

It  is  the  man  or  woman  who  is  handicapped.  It  is  the 
child  who  in  the  future  will  be  handicapped;  the  one  who 
to-day  is  flattered  by  the  personal  attentions  of  the  polit- 
ical infidel;  the  one  who  eats  Christmas  turkey  —  the 
gift  of  the  despoiler  to  him  who  is  despoiled.  These  are 
the  ones  who  are  paying  in  money,  in  health,  in  happi- 
ness, a  hundred  times  more  than  the  great  taxpayer  whose 
better  fortune  is  urged  as  a  reason  why  the  unfortunate 
should  still  consent  to  support  what  has  been  so  flip- 
pantly called  "honest  graft." 

A  CONCRETE  PICTURE  OF  WASTE 

The  cost  to  the  people  of  the  city  of  New  York  may 
not  be  appreciated  without  reference  to  concrete  facts. 
First  let  us  ask  ourselves  how  much  public  income  is 
subverted  by  breach  of  trust  and  inattention  to  duty.  Our 
budget  this  year  is  $140,000,000.  This  was  the  amount 
provided  for  the  beneficial  use  of  residents 
of  New  York.  It  does  not  seem  possible 
that  the  people  for  whose  benefit  this  fund  is  set  apart 
would  permit  from  $30,000,000  to  $50,000,000  annually  to 
be  diverted  from  its  proper  public  use.  But  is  not  this 
just  what  is  happening?  Approximately  $80,000,000  per 
year  is  spent  for  salaries  and  wages.  Assuming  that  there 
is  no  waste  in  the  salaries  and  wages  of  teachers  and  fire- 
men, would  it  be  too  high  an  estimate  to  say  that  there  is 
a  waste  of  twenty-five  per  cent  of  the  other  pay-roll  cost  of 
government?  Is  $12,000,000  per  annum  too  high  an  es- 
timate of  the  loss  due  to  collusion,  idleness,  and  ineffi- 
ciency ?  Assuming  that  this  amount  is  lost,  is  not  the  theft 
of  $12,000,000  of  time  and  service  just  as  criminal  as  the 
theft  of  $12,000,000  from  the  treasury? 

New  York  buys  probably  $15,000,000  worth  of  sup- 
plies and  materials  per  annum  for  current  operation  and 


Pay-roll  waste 


WHO  PAYS  FOR  GRAFT  AND  WASTE 


29 


maintenance.    Yet  it  pays  higher  prices  than  are  paid 
by  persons  who  buy  at  retail  for  a  small 
pji^  family.    It    buys    in    wholesale    quantities 

but  does  not  obtain  wholesale  rates.  It 
pays  cash  but  does  not  get  either  trade  or  cash  dis- 
counts. It  takes  millions  of  goods  into  stores  without 
holding  any  one  to  account.  It  has  little  protection 
against  deliveries  short  in  weight  and  inferior  in  quality. 
It  is  safe  to  say  that  approximately  $5,000,000  of  every 
$15,000,000,  spent  for  suppHes  and  materials  is  worse 
than  wasted.  New  York  buys  from  five  to  twenty-five 
millions  of  dollars  of  real  estate  each  year.  In  the  light 
of  what  is  already  known  of  the  practices  associated  with 
such  purchases,  is  it  excessive  to  say  that  it  pays  double 
the  amount  that  a  private  person  would  pay  for  the  same 
properties  ?  When  some  one  by  a  process  of  unfair  deal- 
ing deprives  the  city  of  its  funds,  and  by  collusion  con- 
verts them  to  his  own  use,  should  we  not  ask  ourselves 
the  question,  What  is  the  significance  of  such  malprac- 
tice? 

The  city  pays  $30,000,000  per  annum  interest  on  debt 
and  $20,000,000  for  redemptions.  When  we  consider 
its  real  estate  purchases,  its  construction  contracts,  its 
methods  of  using  corporate  stock  to  cover  up  transac- 
tions that  are  not  to  be  reported  in  budget  estimates,  is 
it  too  much  to  say  that  one-half  of  the  debt  of  the  city 
represents  the  tribute  of  the  poor  to  grafters  and  to  those 
who  profit  from  the  city's  inefl&ciency? 
Assuming  that  this  is  approximately  true, 
the  city  is  paying  over  $20,000,000  per 
annum  as  a  current  charge  for  something  that  it  never 
obtained,  besides  being  deprived  of  several  hundred 
million  dollars'  worth  of  needed  equipment. 
Recent  investigations  have  shown  that  the  city  is  not 


Interest  on 
graft 


^ 


30 


WHO  PAYS  FOR  GRAFT  AND  WASTE 


Subversion  of 
revenues 


getting  all  the  revenue  to  which  it  is  justly  entitled. 
The  same  organized  band  of  grafters  in  the  government 
and  out  who  are  conspiring  to  divert  the 
funds  which  are  held  in  trust  for  the  com- 
mon welfare  are  busy  at  work  diverting 
the  revenues  before  they  reach  the  municipal  treasury. 
It  would  appear  by  conservative  estimate  that  the  city  is 
deprived  of  not  less  than  $5,000,000  of  its  revenues  each 
year,  and  that  the  distribution  of  favors  is  very  wide. 

THE    MEANING    OF     INFIDELITY     IN    MUNICIPAL    SERVICE 

Let  us  stop  and  consider  what  all  this  means.  What 
would  $12,000,000  per  year,  if  used  to  pay  for  honest 
service,  do  to  relieve  sickness  and  distress,  preserve  order. 
What  the  cncourage  morality,  educate  the  young,  and 
amount  wasted  contribute  to  public  welfare  and  happiness? 
would  buy  What  would  $5,000,000  spent  for  supplies 
and  materials  do  to  support  adequate  service  if  devoted 
to  the  best  uses  of  the  community?  What  would 
$20,000,000  or  such  sum  as  may  represent  the  budget- 
ary tribute  of  the  present  to  the  graft  of  past  years,  paid 
annually  as  interest  and  retirement  of  debt,  mean  if  applied 
to  the  building  of  subways,  the  improvement  of  the  streets, 
the  equipment  of  parks  and  playgrounds?  What  would 
$300,000,000  of  indebtedness,  or  such  sum  as  may  have 
been  incurred,  which  represents  the  margin  of  graft  in 
the  purchase  of  real  estate  and  in  construction  contracts, 
mean  if  fairly  expended  for  added  school  buildings, 
hbraries,  museums?  What  would  $5,000,000  of  revenues 
sacrificed  annually  to  organized  graft  do  if  used  to  the 
highest  interest  of  those  who  need  the  protection  of  gov- 
ernment ? 

Whether  we  be  right  or  wrong  in  the  estimates  of  the 
financial  cost  to  the  community  of  infidelity  and  in- 


WHO  PAYS  FOR  GRAFT  AND  WASTE         31 

competence  in  municipal  service,  the  cost  measured  in 

human  lives,  in  sickness,  poverty,  misery,  and  crime,  can 

never  be  estimated  nor  accurately  described. 

The  price  paid      a    j    i-u*  •        •      i  1  •  , 

by  the  poor  ^^^  ^his  price  IS  largely  paid,  not  by  the 
rich  but  by  the  poor,  those  persons  who  are 
constantly  appealed  to  for  support  by  the  mstitutional 
parasites  who  are  sapping  the  resources  of  the  body 
poUtic.  What  is  not  understood  by  the  victim  of  private 
greed  in  pubUc  station  is  that  every  dollar  diverted  from 
pubUc  use  is  a  support  withdrawn  from  community 
effort  to  protect  itself  against  disease  and  discomfort  due 
to  the  conditions  imder  which  the  people  of  a  great  city 
must  live;  that  while  taking  away  the  supports,  the  graft- 
ers would  divert  attention  from  the  consequences  of  crimi- 
nal selfishness,  by  making  it  appear  that  his  own  gains 
are  derived  from  those  who  can  afford  to  be  victimized. 


The  results  of 
ignorance 


CHAPTER  IV 

What  We  do  not  Know  about  the  Affaiks  of  our 

Cities  * 

It  is  frequently  said  by  municipal  officers  who  are 
striving  to  do  their  duty,  as  well  as  by  persons  interested 
in  government,  that  a  city  may  never  hope  to  do  business 
with  the  same  fideHty  and  efficiency  as  do  private  cor- 
porations. The  conclusion  is  not  well  founded.  The 
time  has  come  when  the  real  causes  of  infidelity,  waste, 
and  inefficiency  are  being  considered.  It  is  beginning  to 
be  appreciated  that  no  great  business  can  be  successfully 
conducted  without  exact  knowledge  con- 
cerning its  details  being  brought  to  those 
who  are  responsible  for  direction  and  con- 
trol. It  is  coming  to  be  appreciated  that  this  is  just  as 
true  of  public  business  as  it  is  of  private  affairs;  that  it 
is  just  as  true  in  the  management  of  municipal  estates 
and  the  administration  of  funds  in  which  an  urban  com- 
munity has  a  beneficial  interest  as  it  is  of  the  estates 
and  funds  of  life  insurance  companies,  savings  banks,  and 
other  concerns.  The  affairs  of  our  cities  are  clouded  in 
darkness,  so  long  continued  and  so  black  that  it  is  only 
after  long  continued  groping  that  any  knowledge  of  con- 
ditions can  be  obtained.  There  cannot  be  intelligent  or 
efficient  administration  while  such  a  state  of  affairs  exists. 
The  citizen,  the  stockholder,  the  responsible  officer,  is 
asking  for  light  to  guide  him. 

1  Address  before  the  League  of  American  municipalities  at  its  12th 
Annual  Convention  held  at  Omaha,  Nebraska,  September  30,  1908. 

39 


WHAT  WE  DO  NOT  KNOW 


S3 


Let  us  make  these  generalizations  more  concrete. 
Approximately  fifty  per  cent  of  the  annual  budgets  of 
cities  in  the  United  States,  or  about  five  hundred  million 
dollars  per  annum,  is  spent  for  salaries  and  wages.  It 
is  a  common  complaint  that  municipal  employees  are  not 
displaying  the  same  zeal  for  the  city  that  they  do  for 
themselves;  that  they  do  not  render  the  same  character 
of  service  — are  not  as  efficient;  and  that  work  is  not  as 
economically  done  as  in  private  corporations.  What  is 
the  method  usually  employed  in  cities  for  keeping  before 

Thesub'ectof  ^^^  f^^  °^  ^^^  responsible  officer  and  the 
pay-roiJ**^  °  public,  honesty  and  efficiency  of  service? 
What  is  the  method  of  keeping  time  and 
recording  service  in  your  own  city?  What  means  have 
you  for  fastening  responsibility  upon  the  individual 
employee,  the  timekeeper,  or  the  foremen  for  a  correct 
statement  of  the  time  actually  spent  and  the  character  of 
work  performed  in  the  city's  service?  Upon  what  evi- 
dence of  service  is  your  pay-roll  based  ?  Even  assuming 
that  the  time  is  correctly  recorded,  what  method  is  em- 
ployed in  your  own  city  for  ascertaining  whether  or  not 
the  pay-rolls  are  properly  prepared,  and  that  the  charges 
entered  thereon  are  just  claims  against  the  city  ?  Are  the 
pay-rolls  audited,  or  are  they  simply  passed  upon  the  sig- 
nature of  some  one  who  knows  nothing  of  the  facts  and 
therefore  cannot  be  held  responsible  for  misrepresentation  ? 
What  would  it  mean  to  your  city  if  such  responsibility 
could  be  fastened,  i.e.,  if  the  city  could  be  protected 
against  incompetence  and  waste  with  respect  to  fully  one- 
half  of  its  budget  ?  Is  it  too  much  to  assume  that  fifty  per 
cent  of  appropriations  made  in  your  city  for  salaries  and 
wages  is  wasted  through  inattention  to  the  city's  business 
by  those  who  are  employed  in  its  service?  Is  not  the 
theft  of  time  and  service  quite  as  much  against  public 


34 


WHAT  WE  DO  NOT  KNOW 


I 


morals  and  public  welfare  as  the  misappropriation  of 
money  from  the  treasury,  or  the  purloining  of  goods  from 
a  municipal  storehouse?  Is  not  the  moral  effect  upon  the 
employee  just  as  degrading  to  steal  time  as  to  steal  money 
and  goods?  What  would  a  more  effective  application  of 
five  hundred  million  dollars  per  year  spent  in  salaries 
and  wages  mean  —  in  pubUc  health,  in  public  order,  in 
public  convenience,  in  public  education,  and  all  that 
makes  for  public  wellbeing?  Does  not  success  in  your  own 
private  affairs  depend  upon  knowledge  of  the  details  of 
business?  Have  you  as  citizen  or  officer  a  knowledge  of 
the  details  of  business  within  your  own  city?  Is  there 
any  adequate  means  in  vogue  in  the  city  whereby  you  may 
inform  yourselves  concerning  these  details,  in  so  far  as 
they  pertain  to  the  character  of  service  rendered  by 
mimicipal  employees? 

Second  only  in  importance  to  the  loss  to  the  city  for 
dishonest  and  incompetent  service  is  loss  to  the  city  through 
contract  for  supplies  and  materials,  and  the  handling  of 
these  supplies  and  materials  after  they  have  been  received. 
These  purchases,  together  with  contracts  for  repairs,  will 
The  purchase  probably  make  up  between  twenty  per  cent 
of  supplies  and  and  forty  per  cent  of  your  annual  budget, 
materials  j^  ^^  igxge  cities,  the  supplies  and  materials 

purchased  amount  to  millions  of  dollars  per  annum. 
The  city  is  usually  a  cash  customer.  It  buys  in  larger 
quantities  than  any  private  consumer,  and  therefore  should 
be  able  to  obtain  the  benefits  of  wholesale  or  manufac- 
turers' prices,  with  both  trade  and  cash  discount.  What 
is  the  experience  of  American  municipalities  ?  On  account 
of  the  method  employed  in  making  purchases  and  in 
making  settlements  for  purchases,  does  not  your  city 
usually  pay  higher  prices  than  any  one  else  in  the  market, 
and  receive  inferior  goods?  Do  you  know  whether  your 


WHAT  WE  DO  NOT  KNOW 


35 


city  receives  short  deliveries?  Does  your  city  avail  itself 
of  either  trade  or  cash  discounts  ?  Is  it  not  a  proper  sub- 
ject for  inquiry  as  to  the  definite  causes  which  bring 
about  such  a  result?  What  proportion  of  the  goods  pur- 
chased in  your  own  city  are  purchased  on  competitive 
bids?  In  the  preparation  of  proposals  for  bids,  are  the 
specifications  so  made  that  the  wholesaler  and  manu- 
facturer or  other  legitimate  trader  may  be  protected;  or 
are  these  specifications  so  loosely  drawn  that  some  person 
in  the  municipal  service  who  wishes  to  favor  one  con- 
tractor, and  ruin  another,  may  do  so  ?  Did  you  ever  ex- 
amine into  the  question  whether  these  proposals  conform 
to  well-known  trade  specifications?  If  you  have,  it  is 
safe  to  say  that  taking  the  contracts  of  any  ten  different 
departments  of  the  city,  for  similar  goods,  it  would  be 
difficult  to  recognize  the  character  of  any  standard  article 
from  the  description.  Is  not  this  one  of  the  reasons  why 
you  do  not  have  real  competition?  Is  not  this  a  detail 
worthy  of  your  attention? 

Moreover,  has  there  been  any  attempt  made  in  your 
city  to  standardize  the  character  of  purchases  to  be  made, 
so  that  wholessders  and  manufacturers  may  prepare  them- 
selves for  meeting  the  municipal  trade  demand?  If  you 
have  hospitals,  have  you  standardized  your  China  and 
Queens  ware,  so  that  instead  of  having  twenty  or  forty 
different  sizes  and  qualities  of  dinner  plates,  you  have 
two  or  three  standard  sizes  and  qualities  which  lend  them- 
selves to  a  definite  trade  specification?  For  purposes  of 
preparing  bids  for  the  purchase  of  lumber,  have  you,  in 
your  city,  sought  to  standardize  the  different  grades  and 
sizes  to  be  advertised  for  and  purchased  ?  Have  you  estab- 
lished definite  and  well-known  trade  standards  for  coal 
to  be  purchased?  Would  not  attention  to  such  a  detail 
mean  much  in  bringing  you  to  an  honest  and  honorable 


36 


WHAT  WE  DO  NOT  KNOW 


if 


trade  basis,  as  well  as*  save  you  much  money,  or  increase 
the  efficiency  of  your  service?  What  have  you  done 
toward  informing  yourselves  as  to  prices  current  ?  What 
have  you  done  to  make  prices  current  available  for  the 
purpose  of  informing  the  officer  who  is  charged  with  the 
making  of  contracts  and  the  letting  of  bids,  or  the  auditor 
who  is  charged  with  the  responsibility  for  passing  on  the 
justice  of  claims  presented  for  payment?  In  a  large  city 
this  would  require  the  services  of  a  cataloguer,  possibly 
a  woman,  who  would  be  paid  at  the  rate  of  perhaps 
twenty  dollars  per  week.  Assuming  that  competent  ser- 
vice of  this  kind  were  obtained,  would  not  a  city  which 
must  purchase  millions  of  dollars  of  supplies  profit  by 
such  an  administrative  detail? 

Again,  assuming  that  the  city  has  properly  protected 
itself  from  the  point  of  view  of  standard  specifications  as 
a  basis  for  bids  and  by  making  provision  for  obtaining 
knowledge  as  to  prices  and  availing  itself  of  trade 
discounts,  this  still  falls  short  of  fair  and  honorable 
dealing;  this  does  not  protect  the  wholesaler  or  manu- 
facturer m  competition  with  the  middleman  with  political 
influence  who  is  permitted  to  make  deliveries  of  inferior 
quality  and  short-weight,  or  possibly  to  render  two  bills 
for  the  same  article  and  receive  payment  on  each.  What 
provisions  have  you  in  your  city  for  knowing  that  the 
The  keeping  of  goods  purchased  by  the  city  are  up  to  the 
municipal  Standard   required,   and   that  the  quantity 

"'^'^  actually    delivered    corresponds    with    the 

amount  stated  in  the  invoice?  In  case  you  have  an 
adequate  method  o(  protecting  the  city  against  short 
and  inferior  deUveries,  then  what  provision  have  you 
for  knowing  that  goods  delivered  have  reached  the  uses 
for  which  they  are  intended  —  in  other  words,  whether 
or  not  they  have  been  diverted  to  private  instead  of  public 


WHAT  WE  DO  NOT  KNOW 


37 


uses?    Have  you  a  system  of  inspection  and  a  method 
of  store  account  under  proper  accounting  control  which 
will  hold  the  storekeeper  or  custodian  of  the  goods  to  the 
same  accountability  as  is  the  treasurer  held  for  the  cash 
received   and  disbursed?     From  the  point  of  view  of 
public  morality  and  institutional  efficiency,  is  it  not  just 
as  important  to  control  a  million  dollars  worth  of  goods 
as  it  is  to  control  a  miUion  dollars  of  cash  with  which  the 
goods  are  to  be  purchased?  Are  iron  pipe  and  brass 
fitting  being  taken  from  your  municipal  pipe  yards  and 
repair  shops  without  anybody  being  held  to  account? 
Are  loads  of  coal  and  barrels  of  sugar  and  sacks  of  flour 
(for  which  the  city  is  paying)  being  dehvered  to  the  houses 
of  private  individuals?  If  goods  are  being  diverted  from 
their  proper  use,  if  weights  are  short  and  qualities  inferior, 
if  the  manufacturer  and  wholesaler  engaged  in  legitimate 
business  are  being  driven  out  of  competition,  and  no  one 
but  a  straw-trader  or  an  intermediary  finds  it  profitable 
to  deal  with  the  city,  should  not  some  one  be  held  criminally 
responsible  for  these  acts  ?  These  are  details  of  busmess 
worthy  of    attention  in  private    business  — in    fact    to 
neglect  them  would  mean  failure;  should  they  not  have 
the  attention  of  those  interested  in  public  business?  Or, 
is  it  still  to  be  accepted  that  the  taking  of  goods  or  the 
wasting  of  service  belonging  to  the  city  is  only  a  practical 
joke  to  be  wmked  at? 

A  considerable  portion  of  the  municipal  estate  is  m  the 
form  of  tools  and  equipment.  Many  of  these  are  of  such 
a  character  as  to  be  easily  lost  or  disposed  of.  The  cost 
of  replacement  probably  amounts  to  at  least  five  per  cent 
of  the  annual  budget.  This  in  a  city  like  New  York 
would  mean  several  million  dollars  of  annual  expenditure. 
In  the  smaller  cities  the  expense  and  capital  ouday  would 
be  proportionately  less.    May  we  not  ask  ourselves  what 


88 


WHAT  WE  DO  NOT  KNOW 


provision  is  being  made  for  knowing  that  this  necessary 
equipment  for  mimicipal  service  is  being  proptTly  cared 
for  ?  How  do  you  know  that  a  large  part  of  the  cost  is  not 
for  the  replacement  of  tools  and  implements 
Mimicipal  tools  ^^^^   ^^^^  ^^^^  diverted   to   private   use? 

and  equipment    ^  ,         .         -  ,  ^  , 

Does  the  city  charge  to  the  employee  or  to 
the  foreman  the  tools  and  instruments  which  are  {)laced  in 
his  hands?  When  requisitions  are  made  for  tools  and 
instruments  to  replace  those  which  are  alleged  to  be 
worn  out,  does  the  city  require  that  the  old  tool  shall 
accompany  the  requisition  before  it  will  be  honored? 
Even  old  tools  are  valuable;  does  the  city  realize  what 
it  should  on  its  scrap?  Private  institutions  have  found 
that  insistence  on  such  small  details  has  saved  them 
hundreds  of  thousands  per  annum  —  in  fact  has  reduced 
their  tool  account  to  fifty  per  cent  what  it  had  been  when 
no  account  was  kept  and  the  old  tools  were  not  required 
to  be  returned.  Is  it  to  be  expected  that  a  municipality 
can  get  good  business  results  and  can  expect  fidelity  of 
service  when  they  do  not  take  the  ordinary  precautions 
used  in  private  business? 

Some  of  our  cities  operate  repair  shops  which  employ 
himdreds,  even  thousands,  of  men.  In  these  shops  all 
Municipal  re-  kinds  of  mechanicEil  and  machine  tool  work 
pairs  and  is  done,  from  the  ordinary  repair  work  of 

replacements  ^^ic  blacksmith's  shop  to  the  making  of 
delicate  instruments,  ship  carpentry,  and  cabinet  work. 
Is  there  any  administrative  method  employed  in  your  city 
whereby  it  may  be  determined  what  is  the  labor  cost  and 
the  material  cost  of  repairs  even  by  classes  of  expenses 
to  be  charged  thereby?  Do  you  have  any  means  of 
determining  whether  or  not  it  is  cheaper  to  do  your 
repair  work  in  a  municipal  repair  shop  or  by  contract? 
Of  the  valuable  materials  and  supplies  used  in  the  repair 


WHAT  WE  DO  NOT  KNOW 


39 


shop,  do  you  have  any  means  of  ascertaining  whether  or 
not  these  have  been  used  for  the  purposes  of  the  city? 
In  the  repairing  of  such  valuable  and  expensive  instru- 
ments as  automobiles  in  municipal  shops  and  garages,  do 
you  have  any  means  for  finding  out  what  is  the  cost  of 
keeping  your  automobile  in  repair?  It  is  thought  worth 
while  to  keep  records  of  cost  of  repairs  in  private  business 
and  records  of  custodianship  for  valuable  implements 
and  tools;  in  fact,  in  private  business  it  is  thought  to  be 
necessary  in  order  to  protect  those  who  are  seeking  to 
serve  the  institution  with  fidelity  as  well  as  those  who 
stand  in  the  position  of  administrative  responsibility. 
May  we  expect  to  obtain  superior  results  in  a  munici- 
pality when  inferior  methods  are  employed,  and  when 
all  of  the  traditions  of  the  institution  are  based  on  holding 
out  inducements  to  fraud,  misappropriation,  and  insti- 
tutional neglect? 

Similar  questions  may  be  asked  with  respect  to  con- 
tracts for  construction  and  other  relations  of  expenditure 
which  make  for  favoritism,  waste,  and  inefficient  service; 
similar  questions  may  also  be  raised  with  respect  to  munic- 
ipal revenue.  Did  it  ever  occur  to  you  to  ask  the  reason 
for  the  existence  of  the  lucrative  vocation  of  tax  reduction 
agencies  in  our  large  cities  —  persons  regularly  employed 
who  imdertake  to  reduce  your  taxes  for  a  percentage  of 
the  reduction  effected  ?  Has  it  ever  occurred 

Municipal  rev-     .  ^.         ••.!  ,,<., 

enues  ^o  you  to  mquire  mto  the  methods  of  hand- 

ling such  subjects  of  business  as  water 
revenues,  dock  revenues,  ferry  revenues,  park  privileges? 
Do  you  know  what  are  the  methods  employed  m  your 
city  for  the  handling  of  security  deposits  and  other  trust 
funds?  Do  you  know  whether  the  trust  funds  of  the  city 
have  been  impaired  or  diverted  to  other  uses?  Are 
methods  of  accounting  and  reporting  employed  which 


40 


WHAT  WE  DO  NOT  KNOW 


WHAT  WE  DO  NOT  KNOW 


41 


will  regularly  bring  the  answers  to  these  questions  to  your 
attention  and  to  the  attention  of  others  —  which  will  cur- 
rently give  to  you  and  to  others  the  information  necessary 
to  a  proper  basis  for  judgment  in  the  exercise  of  duties 
of  citizenship  or  of  administration?  These  are  the  in- 
quiries which  are  raised  by  the  general  subject  which  is 
before  us,  and  which  are  of  the  greatest  importance  in 
the  solution  of  the  problem  of  efl&cient  government  in 
the  United  States. 

The  most  important  event  of  the  year  in  municipal 
life  is  the  making  of  the  Budget.  This  not  only  calls 
for  report  and  account  by  officers,  but  directly  appeals 
to  every  taxpayer  and  to  every  person  residing  within 
the  territorial  limits  of  the  municipality  whose  interests 
are  to  be  made  the  subject  for  the  next  year's  expenditures. 
In  the  making  up  of  the  annual  Budget,  do  you  in  your 
city  proceed  with  full  knowledge  of  the  facts,  or  are  you 
working  in  the  dark?  As  officers  do  you  know  what  the 
revenues  and  expenses  of  the  last  year  have  been,  or  do 
you  rely  entirely  on  information  as  to  the  amounts  of 
moneys  received  and  disbursed  without  knowing  to  what 
extent  these  have  been  on  account  of  the  business  of  the 
The  making  previous  period?  Are  your  estimates  based 
of  a  municipal  on  pay-roUs  which  have  been  padded  to 
budget  make  the  need  seem  great?  Have  purchas- 

ing agents  laid  in  a  large  stock  of  goods  upon  orders  given 
to  favorites  and  thus  made  it  to  appear  that  increased 
appropriations  are  necessary  when  by  this  amount  the 
needs  of  the  subsequent  years  may  be  decreased?  Have 
liabilities  to  tradesmen  incurred  during  the  last  year  been 
deferred  to  make  the  expenses  of  the  present  administra- 
tion seem  small,  and  for  the  purpose  of  discrediting  suc- 
cessors? Have  a  large  part  of  the  expenses  of  the  year 
been  charged  to  bond  and  cor})orate  stock  accoimts  as 


a  means  of  keeping  the  tax  rate  down,  while  exj)enses 
are  actually  increasing?  Are  you  acting  on  exact  infor- 
mation with  regard  to  these  facts,  or  are  you  doing  busi- 
ness by  rule  of  thumb  ?  If  you  are  in  the  dark,  can  you 
expect  or  even  hope  to  protect  the  community's  interest 
when  others  whom  we  may  call  "insiders"  through  per- 
sonal contact  are  keeping  in  close  touch  with  every  situa- 
tion bearing  on  their  own  business  relation?  In  the  past 
has  not  the  trouble  been  the  fault  of  ignorance  rather 
than  any  innate  inability  of  a  municipality  to  succeed  in 
the  conduct  of  its  business? 

The  greatest  problem  of  government  must  ever  be  the 
municipal  problem.  As  population  increases,  as  busi- 
ness becomes  more  urban,  as  the  territory  occupied  by 
The  future  of  townsmen  yields  less  of  subsistence,  as  in- 
American  creasing  proportions  of  our  people  must 
'^***®*  depend  on  exchange  for  foodstuffs  and 
shelter,  the  functions  of  government  as  the  organized 
agency  for  popular  welfare  must  multiply.  From  economic 
necessity,  activities  which  in  the  past  have  been  left 
entirely  to  individuals  and  companies  must  be  taken  over 
by  the  mimicipality.  The  town-building  tendency  of 
the  time  can  have  but  one  meaning  —  the  ever-increasing 
importance  of  corporate  funding  needs  and  corporate 
business  needs  of  municipalities.  Whatever  the  theory 
held  as  to  underlying  governing  principles,  these  fimding 
and  business  necessities,  which  grow  as  our  cities  grow, 
must  force  us  over  to  methods  of  administration  by  which 
citizen  control,  legislative  control,  executive  control,  and 
judicial  control  may  be  made  effective.  This  can  be 
done  only  when  these  different  forms  of  control  are  made 
intelligent.  When  the  American  people  are  in  a  position 
to  act  with  intelligence  with  respect  to  matters  of  com- 
munity interest,  then  will  the  municipality  in  its  corpo- 


4St 


WHAT  WE  DO  NOT  KNOW 


rate  capacity  be  in  a  position  to  undertake  any  function 
which  the  highest  welfare  of  the  community  may  require, 
and  to  perform  these  functions  with  the  same  fidelity 
and  the  same  economy  as  are  found  in  the  most  efficient 
of  our  great  private  corporations. 

This  day  is  not  far  distant.  There  is  an  ever  increas- 
ing demand  for  the  introduction  and  continuance  of  ad- 
ministrative methods  which  will  provide  the  information 
needed  to  make  pubHc  administration  efficient.  It  has 
come  to  be  recognized  that  the  malfeasances,  the  mis- 
feasances, and  the  nonfeasances  of  office  in  the  past  have 
not  been  due  to  lack  of  law.  The  law  at  all  times  has  been 
adequate  to  bring  to  justice  every  person  who  has  proved 
false  to  a  public  office  or  trust.  Failure  of  justice  in  every 
instance  has  been  due  to  the  same  cause  as  inefficient 
administration,  viz.:  insufficiency  of  evidence  —  in  other 
words,  the  inabiUty  of  the  courts  to  get  at  the  facts.  The 
great  political  campaigns  of  to-day  are  campaigns  for 
facts,  for  pubUcity,  for  light,  for  the  keeping  and  the 
preservation  of  records  by  which  the  responsibility  of 
every  person  connected  with  the  government  may  be 
proved,  for  making  these  records  pubUc  records;  one  step 
further  —  for  bringing  a  digest  of  this  evidence  regularly 
before  every  person  who  is  interested  and  every  one  who 
is  responsible  for  the  exercise  of  citizen  or  official  judg- 
ment in  the  management  and  control  of  municij^al  affairs. 
When  this  desideratum  shall  have  been  reached,  then  those 
who  are  laboring  in  the  interests  of  the  public  will  be  the 
ones  rewarded;  then  will  the  faithless  and  the  inefficient 
be  eliminated  from  the  civil  service.  Not  till  then  may 
we  say  that  we  have  given  to  the  municipal  employee  the 
same  protection  and  the  same  encouragement  that  honest 
and  efficient  service  is  given  in  private  life. 


CHAPTER  V 

The  Financial  Management  of  Municipalities* 

For  the  purpose  of  this  discussion  the  word  "finan- 
cial" will  be  taken  to  mean  —  pertaining  to  funds  or 
to  the  means  of  purchase  and  of  payment;  "financial 
management"  will  be  understood  to  include  the  means 
employed  for  the  acquisition  of  funds,  as  well  as  for  their 
administration  and  disbursement.  For  the  purpose  of 
presentation,  the  English  basis  of  classifica- 

obscrva^M  *^^^  ^^  ^^  ^^^  ^  distinguished  from  the 
continental,  or  the  prevailing  American  muni- 
cipal practice.  To  be  more  specific,  it  will  be  assumed 
that,  for  the  purpose  of  financial  management,  there  are 
essentially  three  classes  of  funds,  viz. :  Current  funds  —  or 
those  to  be  used  for  current  purposes  of  a  municipality; 
capital  funds  —  or  those  intended  for  investment  or 
permanent  improvement,  and  tru^t  funds  —  or  those  in 
which  the  city  is  interested  as  trustee  or  agent  for  the 
benefit  of  another,  what  is  known  in  law  as  a  cestui 
que  trust.  Employing  these  distinctions  throughout, 
the  subject  will  be  reviewed  from  six  different  aspects: 
(i)  The  method  of  acquiring  funds  to  be  administered; 
(2)  the  administration  of  revenues  and  expenses;  (3)  the 
management  of  capital  fimds;  (4)  the  management  of 
trust  funds;  (5)  the  administration  of  cash  receipts  and 
cash  payments,  and  (6)  methods  of  financial  adminis- 

*  Address  prepared  for  the  Empire  Club,  February  16,  1905,  Toronto, 
Canada.    Published  in  Public  Policy,  April  22,  1905. 

43 


44        FINANCIAL  MANAGEMENT  OF  CITIES 

trative  control.  The  nomenclature  is  that  suggested  by 
the  secretary  of  the  committee  on  accounting  and  statutes 
of  the  American  National  Municipal  League  for  adoption. 

THE  METHOD  OF  ACQUIRING  FUNDS  TO  BE  ADMINISTERED 

In  this  relation  current  funds  and  capital  funds  only 
will  be  considered.  The  intention  is  not  to  discuss  the 
method  of  acquiring  funds,  except  as  this  may  be  inci- 
dental to  questions  of  subsequent  management ;  nor  can 
it  be  hoped  that  in  an  address  of  this  kind  more  than  a 
current  mention  may  be  made  of  some  of  the  leading 
features  of  financial  administration.  To  adequately  treat 
such  a  subject  as  has  been  assigned  by  your  secretary 
would  require  the  preparation  of  a  treatise. 

First,  then,  to  engage  a  few  fundamental  common- 
places: A  city,  in  the  main,  must  rely  on  its  revenue  powers 
for  current  funds,  i.e.,  it  must  depend  on  its  abiUty  to 
obtain  its  current  means  of  support  from  tax  levies, 
excises,  fees,  fines,  profits,  or  the  exercise  of  other  acts  of 
sovereignty,  poKce  control,  and  municipal  proprietorship; 
capital  funds,  on  the  other  hand,  are  more  frequently 
acquired  by  means  of  municipal  borrowing.  The  reason 
for  this  difference  in  method  is  at  once  apparent.  The 
Current  funds  ^nderlymg  purpose  of  acquiring  what  are 
here  called  current  fimds  is  to  repair  waste, 
to  prevent  depreciation,  and  to  meet  the  costs  of 
municipal  service.  Such  funds  are  in  the  nature  of  tem- 
porary financial  supplies  —  they  are  to  be  currently 
consumed;  they  are  to  be  used,  but  in  their  use  no 
increase  in  assets  is  obtained. 

Capital  funds  are  for  the  purchase  of  properties  and 
equipment;  their  primary  end  is  to  acquire  something 
which  may  be  permanently  retained  or  continuously 
employed  by  the  city  —  something  in  the  nature  of  prop- 


' 


FINANCIAL  MANAGEMENT  OF  CITIES        45 

erty  and  equipment  or  of  an  investment  which  is  to  be 
protected,  repaired,  or  replaced  at  current  expense.  To 
restate  the  distinction,  current  funds  are  raised  for  paying 
Capital  funds  ^f^P^^^^^y  while  capital  funds  are  for  buy- 
ing property  or  equipment  which  shall  not 
be  permitted  to  become  impaired;  the  one  is  for  municipal 
subsistence,  the  other  is  to  increase  the  municipal  estate. 

Let  us  follow  this  distinction  into  questions  of  financial 
management.  As  a  matter  of  poUcy  a  city  could  not 
long  rely  on  municipal  borrowing  for  current  funds, 
since  by  process  of  waste  and  continued  cost  its  borrow- 
ing power  would  soon  become  exhausted.  Borrowing 
power  depends  on  income;  it  cannot  to  any  considerable 
extent,  in  municipal  finance,  be  based  on  liquidation  or 
realization  on  the  municipal  estate.  The  only  place 
which  borrowing  can  have  as  a  means  of  supplying  cur- 
rent funds  is  that  of  temporary  financial  relief  pendmg 
Limits  of  *^^  collection  of  income   accruements,   or 

borrowing  ^  ^  means  of  supplementing  inadequate 

revenue  levies.  Such  current  borrowings 
must  be  in  the  nature  of  short-time  obligations  and  should 
never  exceed  the  amount  of  current  income  obtainable 
from  revenue  sources  within  the  term  of  the  loan.  To 
illustrate:  We  will  assume  that  the  necessary  current 
expenses  for  salaries  and  maintenance  of  equipment  were 
$10,000,000  per  year.  Resort  to  borrowing  to  meet 
this  annual  cost  would  only  result  in  postponing  the  pay- 
ment of  an  expense,  which,  when  paid,  would  leave  no 
increase  in  the  municipal  estate.  To  continue  to  borrow 
for  such  a  use  would  be  to  cumulate  the  burdens  of  tax- 
ation which  must  be  met  in  the  future;  i.e.,  to  increase 
taxation  without  increasing  pubUc  properties  or  utilities. 

While  this  is  true  of  current  funds,  the  opposite  is 
true  of  capital  funds.    For  acquiring  capital,  municipal 


i| 


4«        FINANCIAL  MANAGEMENT  OF  CITIES 

borrowing  is  usually  better  adapted  than  the  making  of 
extraordinary  revenue  levies.  For  example:  A  city  hall 
Advantages  of  is  to  be  built.  To  provide  the  funds  neces- 
borrowing  cap-  sary  taxation  would  require  an  extraordi- 
itai  funds  jj^j.y  y^^^  ^j^.^j^  ^gj^^  double  the  current 

rate.  This  would  prove  oppressive;  it  might  throw  the 
business  of  the  community  out  of  adjustment;  it  might 
increase  individual  expenses  of  citizens  to  such  an  extent 
as  to  make  business  in  that  community  unprofitable. 

The  financial  justification  for  the  building  of  a  city 
hall  is  to  free  the  city  from  annual  rent  for  housing  its 
oflScers,  and  for  protecting  its  records  and  equipment. 
An  immediate  capital  expenditure  of  one  million  dollars 
might  save  the  corporation  sixty  thousand  dollars  per 
annum  in  rents.  If  a  million  dollars,  therefore,  were 
at  once  raised  by  process  of  taxation  there  would  be  a 
resultant  decrease  in  the  annual  levies  of  sixty  thousand 
dollars  per  year.  That  is,  the  community  would  receive 
six  per  cent  return  on  its  capital  investment  of  a  million 
dollars.  But  the  capital  burden  is  greater  than  the 
community  would  care  to  accept.     By  issu- 

Reduction  of        .  .iv  t   i,  ^     ^ 

expenditures  ^^  ^  miUion  dollars  of  four  per  cent 
bonds,  payable  fifty  years  hence,  there  will 
be  a  margin  of  two  per  cent  per  annum  as  a  saving  on  the 
capital  cost.  Thus,  with  financial  advantage,  the  prin- 
cipal may  be  allowed  to  remain  a  continuing  obligation. 
Without  causing  any  financial  drain  on  the  community 
by  such  a  management  in  the  borrowing,  the  community 
as  a  whole  not  only  would  have  gained  one  million  dol- 
lars in  invested  capital,  but  also  would  have  saved  two  per 
cent  per  annum,  or  $20,000  per  year,  in  current  expenses. 
We  will  take  another  view  of  the  situation.  Let  us 
assume  that  it  might  be  desirable  to  provide  for  the  ulti- 
mate payment  of  the  million-dollar  loan.    If  the  building 


FINANCIAL  MANAGEMENT  OF  CITIES        47 

were  adequately  maintained  out  of  current  revenues, 
by  setting  aside,  as  a  sinking  fund,  $20,000  per  annum, 
or  the  amount  which  is  saved  from  revenues,  at  the  end  of 
fifty  years  the  bonds  might  be  paid.  The  city  would  have 
provided  itself  with  a  miUion-dollar  capital  equipment, 
and  not  only  have  paid  the  current  interest  of  three 
Increase  of  per  cent  on  the  loan,  but  at  the  end  of 
capital  by  rev-  fifty  years  Would  also  have  repaid  the  prin- 
enue  saving  ^^^^  rpj^j^  would  be  done  at  the  same 
annual  expense  as  the  city  would  have  been  imder  if  it  had 
continued  to  rent  quarters  at  the  rate  of  fifty  thousand 
dollars  per  year.  But  is  this  the  only  consideration? 
Not  only  would  the  city  have  increased  its  capital  equip- 
ment a  million  dollars,  but  the  next  generation  would  be 
relieved  of  a  current  expense  in  the  form  of  interest  and 
sinking  fund  equal  to  the  amount  of  the  rent  previously 
paid;  assuming  that  no  provision  were  made  for  deprecia- 
tion and  the  building  lasted  fifty  years,  and  the  city  would 
have  the  site  only,  which  with  the  appreciation  of  land 
valuation  might  save  the  city  a  large  amount  in  future 
rents.  This  illustration  is  given  to  raise  some  of  the  points 
of  management  pertaining  to  the  acquisition  of  funds  for 
capital  use. 

Other  questions  quite  as  important  from  the  point  of 
view  of  financial  management  may  be  raised  with  refer- 
ence to  the  several  classes  of  capital  loans  which  a  city 
may  undertake.  Generally  speaking,  there  are  four 
sources  from  which  a  city  may  obtain  its  capital  funds, 
viz.:  (i)  From  sale  of  annuities;  (2)  from  sale  of  corpo- 
Bifference  in  rate  stock  (or  bonds) ;  (3)  from  appropria- 
methodsofac-   tions  of  revenue  surplus  (or  extraordinary 

quiring  capital  i      •     \      /  %    r  .  ^  , 

revenue  levies);  (4)  from  gifts  or  bequests 
of  private  individuals  or  corporations.  The  last  method  is 
incidental  and  entirely  beyond  the  purview  of  this  subject. 


IH'^, 


4»        FINANCIAL  MANAGEMENT  OF  CITIES 

As  between  the  sale  of  annuities  and  the  issue  of  cor- 
porate stock  (or  bonds),  a  number  of  questions  as  to 
advantage  may  be  raised.  From  the  first  class  of  obli- 
gations, the  question  of  ultimate  payment  is  eliminated 
at  the  time  the  contract  for  annuities  is  entered  into. 
Sale  of  annu-  III  Consideration  of  this  fact,  however, 
ities  and  corpo-  there  must  be  compensation  in  the  annual 
rate  stock  ^^^^     Again,  the  annual  rate  may  be  one 

in    perpetuity,    and,    therefore,    the    capital    charge    is 
apportioned  over  future  generations. 

To  bring  such  a  financial  {)lan  into  comparison  with 
one  which  provides  not  only  for  an  annual  charge  in 
the  form  of  interest,  but  also  an  ultimate  payment  of 
principal,  and  this  usually  not  more  than  one  generation 
removed,  is  a  matter  which  requires  trained  technical 
judgment.    In   regard    to   corjx)rate    stock    (or   bonds) 
which  are  unsecured  and  those  which  may  be  secured 
by  a  sinking  fund  or  by  the  pledging  of  some  definite 
source  of  income,  another  series  of  questions  may  be 
raised.     To  illustrate  a  point  of  practice  in  two  of  the 
large  American  cities:  The  established  policy  in  the  city 
of  Chicago  has  been,  not  only  to  provide  a  sinking  fund 
at  the  time  that  the  loan  is  made,  but  also  to  make  the 
tax  levy  and  an  appropriation  by  the  same  ordinance 
that  authorizes  the  loan.    The  result  is  this:  The  mu- 
nicipal indebtedness  of  the  city  of  Chicago  is  at  all  times 
secured;  the  capital  appropriation  for  sinking  fund  is 
made  a  prior  lien  on  the  annual  assess- 
^^^eTioans  ^^^t,  Coming  ahead  of  revenue  appropria- 
tions   for    current    expenses;    furthermore, 
the  bonded  debt  is  constantly  in  the  process  of  liquida- 
tion out  of  appropriated  revenue  surplus.    If,  therefore, 
we  compare  the  bonded   debt  of  the  city  of  Chicago 
with  that  of  New  York,  we   will  find  that,  while  in 


• 


FINANCIAL  MANAGEMENT  OF  CITIES         49 

population  the  proportion  is  about  as  one  is  to  two,  the 
bonded  debt  is  about  as  one  to  twenty.     That  is  to  say, 
the  per  capita  indebtedness  of  the  city  of  New  York 
is  many  times  greater  than  that  of  Chicago.     Assuming 
the  total  capital  assets  of  the  city  of  Chicago  to  be  one 
hundred  and  fifty  millions,  and  the  total  capital  assets 
of  the  city  of  New  York  to  be  three  hundred  miUions, 
and  assuming  financial  relations  to  exist  as  above  de- 
scribed, by  reason  of  the  sinking  fund  requirements  of 
the  city  of  Chicago  and  the  method  employed  for  meet- 
ing them,  the  capital  liabiHties  would  be  fifteen  million 
doUars  in  the  form  of  loans,  and  one  hundred  and  thirty- 
five  millions  would  appear  as  invested  revenue  surplus 
On   the   other   hand,  the   fuU   $300,000,000  of   capital 
assets  of  the  city  of  New  York  would  have  been  procured 
by  means  of  loans  with  Httle  or  no  invested  revenue 
surplus.    The   exact   comparative   statistics   are   not   at 
present  available,  but  the  diflFerence  exists  and  the  amounts 
taken  serve  to  illustrate  a  diflFerence  in  funding  methods 
employed  in  the  two  cities. 

THE  ADMINISTRATION  OF  REVENUES  AND  EXPENSES 

Income  and  expenditures  are  those  transactions  which 
m  bnghsh  cities  are  included  under  **  revenue  accounts  " 
as  distinguished  from  "cash  receipts"  and  "cash  dis- 
bursements. "  For  the  same  ideas  the  National  Municipal 
Definitions  and  ^^^^^^  ^^^  used  the  terms  ''revenues  and 
use  of  terms  expenses"  instead  of  "income  and  expendi- 
tures,"  while  the  United  States  census,  in 
dealing  with  the  financial  statistics  of  municipalities 
employs  the  words  "revenues  and  expenditures."  These' 
however,  are  but  diflFerent  terms  for  the  same  financial 
concepts,  the  purpose  being  in  the  "income  or  revenue" 
accounts  to  make  a  complete  record  and  financial  sum- 

5 


I 


I 


r' 


50        FINANCIAL  MANAGEMENT  OF  CITIES 

mary  of  all  accruements  to  the  municipality  from  tax 
levies,  fines,  fees,  licenses,  etc.,  during  a  given  period 
under  review,  and  to  oppose  to  this  total  the  amount  of 
all  "expenses"  or  costs  of  administration  incurred  during 
a  like  period. 

The  purpose  of  such  a  record  and  such  a  summary 
is  that  those  in  administrative  control  may  know  whether 
the  city  is  providing  for  itself  adequate  means  of  support 
or  is  cumulating  for  the  future  liabilities  for  the  cost  of 
current  operations  and  maintenance.  The  management 
Administrative  oi  the  "revenues  and  expenses"  of  the 
purposes  of  rev-  city  must  have  reference  to  tliree  admin- 
enue  accounts  igtrative  problems:  (i)  A  question  of  sur- 
plus or  deficit  in  current  fuads  to  meet  the  running 
expenses  of  the  city;  (2)  the  availabiUty  of  the  "income" 
at  the  time  that  it  may  be  needed,  and  (3)  the  ques- 
tion of  economy  in  every  branch  of  the  municipal 
service  for  which  funds  are  provided. 

It  is  a  trite  saying  that  a  city  is  not  in  business  for 
profit.  Nevertheless,  it  must  provide  itself  with  ade- 
quate revenue.  The  first  problem  of  financial  manage- 
ment is  to  protect  the  corporation  against  a  deficit.  It 
is  to  this  end  that  the  device  known  as  a  "budget"  is 
instituted.  But  the  budget  may  not  be  intelligently 
Determination  Constructed  without  a  system  of  accounting 
of  surplus  and  by  which  the  "  revenues  and  (expenses"  of 
deficit  ^Yie  city  may  be  as  accurately  determined 

as  are  the  earnings  and  expenses  of  a  railroad  or  of  a  man- 
ufacturing plant.  The  budget,  when  prepared  from 
the  municipal  cash  book  —  or  the  records  of  receipts 
and  payments  —  is  a  financial  chart  prepared  with  only 
one  of  the  two  points  established  from  which  a  safe 
administrative  course  may  be  steered.  From  this  may 
be  known  whether  the  receipts  of  years  past  have  been 


FINANCIAL  MANAGEMENT  OP  CITIES         51 

adequate  to  meet  current  obligations,  but  whether  these 
receipts  are  drawn  from  current  income  sources,  or  from 
loans,  whether  the  receipts  were  derived  from  current 
assets  accruing  during  the  fiscal  year,  or  an  account  of  a 
previous  period,  whether  there  was  a  deficit  or  a  surplus 
of  mcome  as  compared  with  current  expenses,  there  can 
be  little  more  than  a  guess.    It  goes  without  saying  that 
such  a  method  is  not  a  safe  one  in  the  financial  manage- 
ment of  a  municipality.    Such  a  method  does  not  lay 
the  foundation  for  exact  administrative  judgment     If 
employed    in    private    business    of    large    undertaking, 
nothing  but  fortuitous  circumstance  would  stand  in  the 
way  of  financial  ruin.    From  such  data  neither  the  pubUc 
officer  nor  the  citizen  is  able  to  estimate  the  abUity  or 
mtelhgence   of   those   entrusted  with    the   direction    of 
municipal  affairs. 

This  suggests  another  consideration  in  the  manage- 
ment of  municipal  income.  Not  only  must  the  current 
revenue  provisions  be  adequate,  but  the  cmrent  revenues 
must  be  coUectible  and  made  available  in  the  form  of 
cash  at  the  time  that  "cash"  is  needed  to  meet  cur- 
rent obligations.  The  government  is  brought  face  to 
tace  with  such  questions  as  the  following:  (i)  What 
method  may  be  used  the  most  effectively  to  reduce  tax 
levies  and  other  forms  of  revenues  to  "cash"  when 
needed  ?  (2)  Assuming  that  such  a  method  may  be  em- 
Methods  of        ployed,  will  it  be  more  expedient  to  have 

Tn^LXbie  f^"^"^   ^^   ^^^^"^^   provisions   which   wiU 
,  insure  prompt  coUection,  or,  with  greater 

leniency  to  the  taxpayer,  to  provide  the  city  with  current 
unds  by  borrowing?  (3)  If  borrowing  is  resorted  to,  is 
the  unsecured  "temporary  loan"  or  the  secured  "revenue 
Dond  the  more  advantageous  financiaUy?  (4)  Mav  it 
not  be  weU  for  the  qity  to  shift  the  financial    burden 


i 


N  ^ 


52         FINANCIAL  MANAGEMENT  OF  CITIES 

completely  through  local  assessments  and  representative 
dealing? 

To  illustrate  some  of  these  methods:  (i)  A  tax  is  levied 
imder  a  law  which  offers  a  discount  for  payment  before 
the  tax  becomes  due;  a  constantly  increasing  penalty 
is  placed  on  delinquency;  supplemental  to  this,  as  in  a 
Devices  for  number  of  American  cities,  a  provision  of 
prompt  coUec-  law  is  invoked  that  no  property  transfers 
tion  ^yj  ]^g   ygii^j   ^ntil  the   tax  is  paid.     By 

application  of  such  methods  promptness  in  revenue  pay- 
ments is  not  only  encouraged,  but  in  a  large  measure 
insured.     The  city  may  reasonably  expect  to  be  able  to 
live  on  its  current  income,  provided  the  levy  is  sufficient. 
And  these  measures  would  be  considered  nothing  more 
than  reasonable  diUgence  in  private  business.    Yet  they 
are  seldom  applied  to  municipal  afifairs.    The  thought 
seems  to  be  that  the  municipality,  at  all  times,  should 
wait  on  the  private  and  personal  convenience  of  its  cit- 
izens.   Nevertheless  complaint  from  citizens  is  sometimes 
heard  that  the  affairs  of  the  city  are  not  conducted  in  a 
businesslike  manner.     (2)  Not  wishing  to  resort  to  such 
severity,  the  law  may  be  made  less  strenuous  and  less 
exacting  to  the  taxpayer.     After  it  has  taken  the  neces- 
sary steps  to  provide  itself  with  adequate  current  revenue, 
col-       instead  of  collecting  that  which  is  due,  it 
lections  and       may  decide  to  issue  its  current  credit  obli- 
temporary  gations  to  an  amount  of  ninety  per  cent 

loans  ^£  ^YiQ  tax  unpaid.    This  is  a  close  approxi- 

mation to  the  system  now  in  vogue  in  the  city  of  New 
York.  (3)  Or  the  city  may  be  allowed  to  hypothecate 
the  tax  levy  and  borrow  seventy-five  per  cent  against 
it  in  "anticipatory  tax  warrants."  That  is,  the  city 
may  avail  itself  of  the  levy  before  it  is  due  for  the  pur- 
pose of  hypothecation,  as  in   the  city  of  Chicago,  with- 


FINANCUL  MANAGEMENT  OF  CITIES         53 


Hypothecation 
of   revenues 
and  anticipa- 
tion of  tax 
warrants 


out  incumng  any  deficiency  liabUity  whatever  for  faUure 
=_-....-.,-_    to  coUect.    The  second  expedient  above  set 
forth  would  permit  the  city  to  meet  its  cur- 
rent obligations,  when  its  revenue  collections 
were  nearly  a  year  behind;  the  third  expe- 
dient   referred  to  would  allow  the  city  to 
meet  all  claims  against  it  and  run  a  year  and  a  half  be- 
hmd  m   Its  revenue  coUections.    WhUe  these  methods 
may  appeal  to  a  self-centred  taxpayer  (and  there  may 
be  an  immediate  gain  to  the  individual  on  account  of 
evasions)    It  can  readUy  be  seen  that  such  methods  do 
not  permit   those   responsible   for   the   management   of 
the  financial  affairs  of  the  city  to  exercise  the  best  judg- 
men   or  to  render  to  the  community  the  highest  service 
Neither  may  it  be  said  that  in  the  end  it  is  a laS^ t 

lorS;  T  "f  "'^  ''  """  °'  postponement  and  fi'nal 
o^,  rather   han  of  economy  or  of  reduction  of  corporate 

sities  for  revenues  and  for  the  enforcement  of  revenue 

«:««::  - «,  „,  such  matters  as  street  sprinkling,  street 
cleaning,  street  repairs,  street  Uehting  sewer 
construction  repairs,  etc.,  to  make  local  assesLentt    Jo 
such  improvements  as  those  the  city  may  act  as  agent  of 
the  property  owners,  and  these  who  tL  contracts  for 

ertri    I     ^'^'  ^^^'"''  '^'  individuals  whose  j^rop- 

is  4m^t JT  ^"^  u^'"'"^  '^'"'^y-  The  contrLtor 
IS  permitted  to  recover  by  direct  action  against  the  procertv 
owner,  as  for  debt;  his  security  is  a  statutory  uHven 
on  the  abutting  property  benefited.  en  given 

Aside  from  questions  of  deficit  and  availabiUty  another 
ckss  of  revenue  problems  inheres  in  the  method  7u^X 
revenue  receipts  to  the  satisfaction  of  current  demaS 


'I       !* 


64        FINANCIAL  MANAGEMENT  OF  CITIES 

As  a  primary  restrictive  and  protective  device  it  is  com- 
mon among  Anglo-Saxon  people  for  a  council,  the  repre- 
sentatives of  taxpayers,  to  hold  the  public  purse  strings. 
To  prevent  extravagance  each  ofl5ce  and  department 
may  be  restricted  to  appropriations,  and  to  protect  the 
treasury  against  collusion,  these  appropriations  are  in 
many  instances  made  specific  and  not  transferable.  An 
appropriation  is  an  authority  to  spend.  Without  this 
authority  the  office  has  no  right  either  to  incur  expense 
or  to  authorize  payments  by  the  treasurer. 
Application  of     ^^  ^^^^  ^^^^  appropriations  specific  and 

revenue  receipts  r       i  i      •  i 

not  transferable  is  one  way  to  manage  the 
application  of  funds  to  municipal  use;  another  is  to  make 
appropriations  general,  leaving  to  the  heads  of  the  several 
departments  a  large  measure  of  discretion.  Again,  appro- 
priations general  or  specific  may  be  made  continuous  or 
they  may  revert  to  the  general  treasury  at  the  end  of  the 
fiscal  period.  The  former  device  gives  a  certain  amount 
of  administrative  independence,  while  the  latter  leaves  the 
officer  and  department  helpless  until  new  a})propriations 
are  made  by  the  council.  Both  as  a  matter  of  accounting 
and  as  a  matter  of  financial  administration  and  control, 
the  English  parhamentary  method  has  much  to  com- 
mend it. 

Financial  management  in  its  most  important  relation 
has  to  do  with  mimicipal  economy  in  administration. 
For  this  the  EngHsh  system  of  revenue  accounting  is  a 
Financial  econ-  necessary  foundation.  Not  only  must  the 
omy  in  admin-  officer  and  the  citizen  know  tliat  the  gov- 
istration  emment  is  living  within  its  means  —  that 

it  is  not  incurring  a  deficit  —  but  it  should  also  be  known 
whether  the  people  are  receiving  the  largest  amount  of 
public  service  possible  at  a  given  revenue  cost.  It  is  by 
the  latter  standard  that  efficiency  in  government  is  to  be 


English 
methods 


FINANCIAL  MANAGEMENT  OP  CITIES        55 

judged.    For  judgment  as  to  municipal   economy  the 
American  cities  are  almost  completely  lackmg  in  the  nec- 
essary data.    English  cities  also  have  much  to  do  before  the 
best  management  may  be  attained.     Judging  from  pub- 
lished reports,  one  of  the  most  complete  and  consistent  sys- 
tems of  revenue  accounts  in  England  and  Scotland  is  that 
of  the  county  borough  of  Bolton.    In  the  treasurer's  report 
there  is  a  complete  exhibit  of  "revenue  accounts,*'  as  well 
as  of  "capital  accounts''  for  each  department  and  mu- 
nicipal fund;  but  his  report  lacks  a  statement  of  "cash 
receipts"  and  "cash  disbursements,"  one  of  the  essential 
elements    for    budget    estimates.     It    also 
lacks  a  comparison  of  expenses  incurred 
with  municipal  service  rendered;  from  such 
a.  comparison  must  proceed  aU  judgments  as  to  adminis- 
trative efficiency  and  economy.    The  significance  of  this 
report  is  this:  that  while  the  county  borough  of  Bolton 
may  have  an  accounting  system  which  lends  itself  to  every 
administrative  need,   there  is  nothing  in   the  financial 
report  to  show  that  the  management  has  made  the  highest 
use  of  that  system.    The  same  may  be  said  of  the  report 
made  for  the  city  of  Chicago,  where  a  complete  revenue 
system  has  been  introduced. 

Other  EngUsh  and  Scotch  cities  have  introduced  a 
revenue  system  of  accounting.  Many  of  them  have  not, 
however,  a  complete  accounting  basis  for  the  determina- 
tion of  questions  of  economy.  Among  the  hundreds  of 
Amencan  cities,  not  more  than  half  a  score  make  any 
attempt  to  get  at  a  true  basis  for  exact  judgment  as 
The  American  ^^  relations  of  economy  or  cost  to  service 
Situation  rendered.     In  the  few  that   are   rising   to 

the  situation,  however,  they  have  adopted 
the  best  accounting  standards,  and  it  remains  only  for  the 
appUcation  of  accountmg  results  to  statistics  of  service, 


M 


!' 


I 


56 


FINANCIAL  MANAGEMENT  OF  CITIES 


and  for  the  reporting  of  these  results,  to  serve  as  a  guide 
to  the  officer  and  for  the  information  of  the  public     The 
American  cities  withb  a  few  decades  have  risen  from 
small  beginnings  to  their  present  proportions.    To-day 
we  have  sixty-two  cities  as  large  as  New  York  was  one 
hundred    years    ago.     In  truth   the    United    States   in 
common  with  the  rest  of  the  civilized  world  is  coming 
to  be  a  "  nation  of  cities."    It  has  teen  only  within  the  last 
twenty-five  years  that  the  municipal  problem  has  become 
a  senous  one.    Within  the  last  ten  years  there  has  been 
an  awakemng  on  questions  of  municipal  reform  looking 
toward  efficiency  in  administration.    EnUghtened  citizen- 
ship has  turned  to  the  best  models  m   England   and 
contmental  Europe.    The  progress  made  in  law,  and 
accomphshed  reform,  marks  but  in  small  measure  the 
movement  which  has  been  going  on. 

For  five  years  the  National  Municipal  League  has  had 
a  large  committee  at  work  formulating  opinions  which 
might  serve  as  a  basis  for  legislation  for  the  direction  of 
Agencies  of        Citizen  movements,  and  for  the  crystalliza- 

lT:,^^n  *r  °^  P^^"'^"^  *''°"g''*-  The  bureau  of 
the  census  at  Washington,  adopting  the 
general  classification  of  expenditures  formulated  by  the 
league  committee,  is  at  present  employing  an  investi- 
gating force,  and  is  doing  much  to  unify  and  direct  local 
methods  and  opinion,  and  to  harmonize  these  with  the 
best  thought  of  the  time.  A  League  of  American 
mumcipahties  has  been  organized  and  promises  to  give 
attention  to  the  subject.  Various  technical  and  learned 
societies  are  applying  themselves  to  the  task.  The  best 
mteUigence  of  aU  these  is  being  coordbated  through 
correspondence  and  conference.  Citizen  and  patriotic 
societies,  such  as  municipal  voters'  leagues,  legislative 
leagues,  reform  clubs,  etc.,  are  educating  pubUc  thought 


f 


FINANCUL  MANAGEMENT  OF  CITIES        57 

and  organizing  forces  to  accomplish  legislative  results. 
The  last  decade  has  been  one  of  educating  public  opinion; 
in  the  next  decade  we  may  hope  to  see  definite  results 
in  administrative  plans  and  in  constructive  law  based  on 
the  highest  ideals  of  municipal  finance  and  management. 
In  these  eflForts  to  obtain  an  intelligent  basis  for  munici- 
pal organization,  and  for  ofiicial  and  citizen  judgment 
with  respect  to  financial  administration  and  control, 
questions  of  economy  have  played  the  most  important 
part. 

THE  ADMINISTRATION  OF  CAPITAL  AND  LOAN  FUNDS 

The  best  device  in  present  use  for  the  management  of 
"capital  and  loan"  funds  is  the  EngUsh  capital  balance 

The  capital         ^^^?^'  ^^  ^^^^  ^^^^^  ^^  ^  Complete  segre- 
baiance  sheet     g^tion  in  the  summary  made  of  capital  and 
loan  accounts.    This,  however,  is  not  at  all 
times  foUowed  by  British  cities  in  making  their  financial 
statements.     To  refer  again  to  the  county  borough  of 
Bolton,  which  has  pubHshed  such  an  exceUent  report  of 
revenue  accounts,  the  capital  and  loan  items  are  not 
separately  set  forth.    There  is  a  complete  asset  and  Ua- 
bihty  accounting,  but  in  this  the  current  accounts  appear 
m  the  same  summary  as  the  capital  accounts.    In  none  of 
the  pubUshed  statements  do  we  have  the  best  adminis- 
trative standards  consistently  followed  by  British  cities. 
As  a  result,  it  is  fair  to  assume  that  the  best  administra- 
tive ideals  do  not  there  prevail  for  the  purposes  of  financial 
management. 

Distinguishing  the  ultimate  capital  purpose  as  being 
one  for  permanent  or  long  continuing  use,  the  funds  in- 
tended for  the  acquisition  of  properties,  for  investments 
and  for  equipment,  whether  derived  from  bond  sales' 
from  revenue  appropriations  (as  sinkmg  funds),  or  from 


58         FINANCIAL  MANAGEMENT  OF  CITIES 

gifts  and  bequests,  should  be  so  completely  segregated 
"Capital funds"  ^nd  set  forth  that  there  could  be  no 
to  be  segre-  confusion  of  thought  with  reference  to 
^■***  these.    There  should  not  be  a  commingling 

of  capital  assets,  for  the  reason  that  the  officer  and 
the  citizen  should,  at  all  times,  have  before  them  the 
capital  "funds,"  as  distinct  from  "properties  and  equip- 
ment." And  " capital  funds"  should  not  be  confused  with 
"current  funds"  or  "trust  funds,"  not  only  for  the  reason 
that  such  confusion  in  accounts  and  in  pubUc  thought  is 
the  most  frequent  cause  for  misappropriation  and  official 
default,  but  such  an  accounting  tends  to  distort  official 
vision  and  thwart  inteUigent  judgment. 

All  capital  should  be  protected,  and  to  this  end  com- 
pletely segregated  from  current  items.  Mimicipal  capital 
should  not  be  used  or  reported  as  a  basis  for  credit,  neither 
should  statements  as  to  capital  funds  and  capital  equip- 
ment be  esteemed  as  information  pubUshed  for  the  benefit 
Ca  itai  assets  ^^  bondholders  and  other  pubUc  creditors, 
to  be  prote*cted  ^^-ther  such  accounts  and  such  summaries 
should  be  set  up  for  administrative  reasons. 
The  purpose  of  "current  assets"  is  the  Uquidation  of 
obUgations.  "Current  cash"  is  for  immediate  applica- 
tion to  obHgations;  other  "current  assets"  are  for  con- 
version into  "cash"  for  similar  use.  It  is  the  income  of 
the  city  and  the  amount  of  "current  cash"  and  "current 
assets"  on  hand  which  determines  the  credit  possibiUties 
of  a  municipal  corporation. 

"Capital  assets"  are  not  for  realization;  they  are  for 
Capital  assets  Continued  and  permanent  use.  It  is  con- 
not  for  reaUza-  tended,  therefore,  that  those  EngHsh  forma  of 
balance  sheets  which  classify  capital  assets 
as  (i)  "Assets  remimerative  and  reaUzable";  (2)  "Assets 
unremunerative  and  realizable";  (3)   "Assets  unremun- 


PINANCIAL  MANAGEMENT  OF  CITIES         59 

erative  and  unrealizable,"  or  any  similar  classification 
which  has  in  mind  realization,  for  administrative  and 
financial  purposes,  is  meaningless  and  confusing.  Such 
classification  does  violence  to  the  underlying  principle 
and  purpose  of  the  capital  balance  sheet.  A  classified 
exhibit  of  capital  assets  is  a  statement  designed  not  to 
show  the  possibiUties  of  realizing  of  cash,  but  is  intended 
rather  to  serve  as  a  basis  for  property  administration. 

This  distinction  is  as  true  of  a  raikoad  or  of  an  indus- 
trial enterprise  as  it  is  of  a  city.  A  railroad  cannot  and 
does  not  intend  to  reahze  on  its  right  of  way  as  a  distinct 
class  of  assets.  It  cannot  reaUze  on  any  part  of  its  prop- 
erty that  is  intended  and  needed  for  permanent  equipment 
without  impairing  its  earning  power,  and,  therefore, 
defeating  the  very  end  of  reahzation.  The  only  manner 
Classification  in  which  an  enterprise  can  realize  on  capital 
for  administra-  assets  is,  partially  or  wholly,  to  wind  up 

ve  purposes  -^^  afifairs.  When  a  particular  property  may 
be  realized  on,  this  fact  should  be  reflected  in  the 
accounts  by  being  at  once  taken  out  of  statements  of 
capital  assets  and  set  up  as  a  current  asset.  As  before 
suggested,  the  primary  purpose  of  capital  accounts  in 
private  business,  as  well  as  public,  is  to  serve  as  a  guide  to 
officers  in  getting  at  such  questions  of  management  as 
renewals,  depreciation,  distribution  of  surplus,  etc.  These 
are  all  purely  administrative  problems,  and  the  valuation 
of  capital  assets  proceeds  from  an  administrative  point  of 
view.  The  valuation  represented  on  the  capital  balance 
sheet  is  not  based  on  realization  or  salabihty,  but  rather 
on  reproduction  or  capital  cost. 

Every  judgment  pertaining  to  the  capital  accounts, 
whether  for  purposes  of  financial  and  statistical  represen- 
tation or  for  purposes  of  management,  has  to  do  with  a 
different  class  of  judgments  than  those  surrounding  the 


I        r 


60         FINANCIAL  MANAGEMENT  OF  CITIES 

current  assets  of  the  corporation.  This  is  true  in  private 
Basis  for  judg-  business.  It  is,  if  possible,  even  more  true 
ment  as  to  cap-  in  a  municipality  which  has  not  the  remotest 
*^*^  idea  of  selling  any  part  of  its  property  or 
equipment  represented  in  its  capital  accounts,  and  as 
soon  as  such  an  institution  makes  known  its  intention 
to  dispose  of  any  part  of  its  property  or  permanent 
investments,  just  so  soon  must  this  part  of  its  property 
or  investment  be  taken  out  of  the  category  of  capital 
assets  and  revalued  from  the  point  of  view  of  salability 
or  cash  realization. 

A  proper  regard  for  the  financial  management  of  capital 
funds  and  for  the  administration  of  properties  and  equip- 
idea  of  pro-  Dient  of  a  municipality  should  have  in  mind 
tection  funda-  their  protection.  Funds  must  be  safely 
°*®°*  kept  and  invested  to  protect  them  against 

loss  of  principal.  The  properties  must  be  [)rotected 
against  wear,  waste,  and  depreciation.  Equipment  must 
be  replaced  and  the  proper  capital  funds  set  aside  out  of 
current  revenues  for  such  replacement.  An  accounting 
which  will  lay  the  foundation  for  correct  judgment  must 
have  respect  to  such  problems  as  these  —  must  have  re- 
gard to  this  underlying  distinction  to  lay  a  proper  basis 
for  financial  management. 

ADMINISTRATION  OF   TRUST  FUNDS 

The  reasons  above  urged  for  a  separate  accounting 
and  for  a  complete  segregation  of  capital  funds  and  prop- 
erties from  current  assets  will  apply  with  equal  force  to 

Segregation  of     f'^'f  ^"^^^  ^^^  ^'^^^^''     ^^^^^  significance 

trust  funds        ^^  also  given  by  reason  of  the  special  fiduciary 
relations  established.    Not  only  does  civic 
pride  and  the  reputation  of  the  community  for  fair  deal- 
ing require  that  trust  funds  and  trust  relations  be  pro- 


FINANCIAL  MANAGEMENT  OF  CITIES         61 

tected,  but  also  a  proper  regard  for  the  rights  of  parties 
in  contemplation  of  law.  Another  reason,  purely  admin- 
istrative, is  urged.  There  is  no  surer  way  of  inducing 
dishonesty,  corruption,  and  loose  financial  practice  than  to 
confuse  trust  moneyswith  municipal  corporate  funds.  Not 
only  should  there  be  a  strict  asset  and  liability  accounting 
for  trust  estates,  but  also  such  a  record  of  income  and 
expenditure  as  will  insure  economy  in  management.  For 
better  intelligence  with  respect  to  this  department  of  mu- 
nicipal service  a  distinction  should  also  be  made  between 
private  trusts  and  deposits,  public  trusts,  revenue  agency 
funds,  and  local  improvement  funds. 

MANAGEMENT  OF  RECEIPTS  AND  DISBURSEMENTS 

The  more  frequent  fault  in  public  accounts  is  to  con- 
fine the  record  and  reports  to  a  detailed  statement  of 
"receipts  and  payments,"  while  the  accounts  of  "revenue 
and  expenses"  are  neglected;  in  other  words,  cash  accounts 
alone  are  kept.    Quite  as  fallacious  is  the  keeping  a  strict 
account  of  ''revenues"  and  neglecting  the  cash  transac- 
tions of  the  public  treasury.    The  revenue  accounts  are 
necessary  to  economy  of  management.    The  cash  accounts 
are  necessary  to  the  protection  of  official  fidelity.    A 
correlation  of  the  two  must  be  made   as  a  basis  for 
the  budget.    Receipts  and  payments  have  to  do  with  the 
Cash  to  be         flow  of  cash  —  they  pertain  directly  to  the 
accounted  by     treasury.     These  must  be  strictly  kept  with 
reference  to  legal  and  administrative  funds. 
Not  only  is  official  fidelity  dependent  on  a  strict  account 
of  the  flow  of  cash,  but  also  for  administrative  purposes, 
both  as  a  guide  to  effort  toward  coUection  and  as  a  basis 
for  temporary  loans,  exact  knowledge  as  to  the  balance 
in  each  fund  is  imperative. 


!  t 


i    } 


FINANCIAL  MANAGEMENT  OF  CITIES 


METHODS  OF  FINANCIAL  CONTROL 

Effective  control  is  essential  to  efficient  financial  manage- 
ment. Under  a  system  of  popular  government,  such  as 
is  common  in  Anglo-Saxon  countries,  there  are  five  dis- 
tinct controlling  relations  to  be  noted:  (i)  Reventie  con- 
trol is  secured  through  a  representative  house  or  council, 
Organization  in  which  all  revenue  measures  must  originate 
for  financial  and  whose  action  and  approval  is  necessary 
to  appropriation.  (2)  Administrative  dis- 
cretionary control  is  attained  through  the  executive  and 
through  the  various  administrative  discretionary  heads 
subject  to  whose  motion  or  discretion  appropriations  are 
disbursed.  (3)  Accounting  control  has  more  recently  been 
added  by  the  institution  of  a  department  or  office,  at  the 
head  of  which  is  a  comptroller,  and  in  aid  of  which  is 
devised  a  system  of  financial  accounts.  (4)  Judicial 
control  is  found  in  an  independently  organized  system 
of  courts  which  may  at  all  times  be  appealed  to  to  enforce 
the  performance  of  official  duty  and  to  protect  municipal 
corporate  rights.  (5)  Popular  control — over  council,  exec- 
utive and  financial  officers  —  is  secured  through  elections 
and  appointments. 

For  purposes  of  revenue  control  there  are  various  forms 
of  council  organization  and  various  boards  of  appraise- 
ment, apportionment,  appropriation,  etc.,  for  the  advice 
of  members  of  the  council,  subject  to  whose  initiation  and 
final  adoption  reveni^e  measures  are  passed  and  an  appro- 
priation made.  These  various  devices  can- 
not be  gone  into  at  this  time.  Generally 
speaking,  there  may  be  said  to  be  two  classes 
of  orders.  The  first  to  be  noted  is  one  in  which  there 
is  no  coordination  —  each  department  or  office  represent- 
ing its  wants  and  pressing  them  before  the  council,  their 


Revenue  con- 
trol 


FINANCIAL  MANAGEMENT  OF  CITIES        es 

requests  to  be  granted  or  not  granted,  cut,  sliced,  and  finally 
passed  without  regard  for  administrative  results,  for  politi- 
cal or  other  reasons.  The  other  is  a  system  by  which 
all  estimates  and  financial  demands  of  officers  and  depart- 
ments are  submitted  to  a  board  or  committee,  which  may 
properly  consider  the  wants  and  administrative  needs  of 
every  division  of  government,  and  having  in  mind  the  tax 
limitations  or  financial  condition  of  the  community,  may 
trim  and  adjust  them  to  a  consistent  plan  and  to  such  a 
revenue  basis  as  may  come  within  the  taxpayer's  means 
without  jeopardizing  the  government  or  impairing  its 
efficiency. 

In  administrative  discretionary  control  lies  the  whole 
problem  of  directive  intelligence  and  municipal  economy. 
As  to  this  there  has  been  a  wide  divergence  between  the 
EngUsh  and  Scotch  development  and  the  newer  American 
Administrative  adaptation.  In  England  and  Scotland,  for 
discretionary  centuries,  a  Contest  was  waged  between  the 
representatives  of  the  people  in  council  and 
the  representatives  of  the  crown  or  executive  head.  The 
result  has  been  that  gradually  administrative  functions 
have  been  taken  away  from  those  in  executive  position 
and  absorbed  by  committee  of  the  council.  Local  con- 
ditions and  those  customs  which  have  grown  up  around 
concepts  of  local  official  dignity  have  made  the  English 
and  Scotch  mayor  a  chief  social  functionary,  while  the 
principal  business  and  the  administrative  functions  of  the 
municipality  have  been  placed  in  the  hands  or  heads 
of  legislative  committees.  Through  such  organization 
mature  discretion  has  been  assured. 

The  newer  American  models  have  had  in  mind  ad- 
ministrative effectiveness  rather  than  deliberation  as  a 
basis  for  control.  Under  conditions  which  have  in  the 
main  been  without  contention  as  between  mayor  and 


1 


f, 


64        FINANCIAL  MANAGEMENT  OF  CITIES 

council  —  which  have  been  utterly  devoid  of  a  sense  of 
"dignity"  to  be  supported  by  the  chief  executive  —  with- 
out those  customs  and  social  precedents  which  require 
English  and  2U1  ofl&cial  personage  to  represent  the  corn- 
American  munity  "socially"  —  there  has  been  no 
models  peculiar  line  of  social  demarkation  between 
one  class  of  officials  and  another  which  would  require 
the  mayor  to  devote  himself  to  receptions  and  other 
courtly  functions,  leaving  to  the  council  (the  representa- 
tives of  the  people)  the  less  dignified  and  ungenteel  "busi- 
ness" of  a  corporation.  Our  models  for  administrative 
efficiency  and  control  in  mimicipal  government  are  found 
rather  in  the  large  private  corporation,  for  which  America 
has  recently  gained  world  fame.  In  an  American  rail- 
road corporation,  for  example,  the  operative  head  is  its 
president.  The  board  of  directors  (the  council)  controls 
in  all  financial  matters  and  determines  corporate  poUcy. 
This  is  the  working  ideal  of  the  American  corporation. 

In  private  corporate  organizations,  the  greatest  economy 
and  the  highest  working  efficiency  is  obtained,  not  by 
portioning  out  official  direction  and  administrative  con- 
trol to  a  number  of  committees  responsible  to  a  deliberate 
body,  but  by  giving  a  single  directing  head  the  power  to 
command  and  control  the  many  corps  of  employees  co- 
operating for  common  ends,  and  by  holding  this  directing 
head  —  this  person  in  command  —  responsible  for  the 
Centralization  operative  result.  That  he  may  be  able  to 
vs.  deccntraiiza-  exercise  intelligent  judgment  in  administer- 
tion  jjjg  ^Yie  business  of  the  corporation,  an  effi- 

cient accounting  service  is  installed,  one  by  means  of 
which  he  may  have  a  complete  record  and  summary  of 
financial  restUts. 

He  is  likewise  given  a  department  or  bureau  of  inspec- 
tion as  a  means  of  obtaining  exact  information  with  respect 


FINANCIAL  MANAGEMENT  OF  CITIES        65 

to  the  physical  and  operative  results.  Current  periodical 
reports  are  required  from  each  branch  of  the  service,  that 
he  may  have  before  him  departmental  results,  A  depart- 
ment or  bureau  of  statistics  and  research  is  kept  at  work 
coordinating  all  of  the  various  reports  (financial,  physical, 
operative,  and  departmental)  around  the  problems  con- 
cerning which  exact  knowledge  is  required  for  the  exer- 
cise of  mature  official  discretion,  to  enable  him  to  have 
the  best  discipline  in  the  service,  on  which  he  must  depend 
for  the  execution  of  policies  instituted.  And  for  the  ad- 
ministration of  operative  plans  he  is  given  liberal  powers 
of  appointment,  suspension,  and  removal  of  departmental 
heads.  Likewise,  for  similar  purposes,  the  several  heads 
of  departments  are  given  control  over  deputies,  assistants, 
and  employees  serving  under  them. 

With  these  several  means  of  information  at  his 
hand,  with  these  commanding  powers  of  bringing  the 
personnel  of  corporate  employment  into  organic  cor- 
porate   service,     the     administration    of    the    working 

Methods  of  con-  g^^^P  ^  ^  modem  American  corporation 
troi  under  a  is  very  like  the  direction  to  the  several 
centralized         civic  or  industrial  corps  of   an   imperial 

svstem 

army.  This  ideal  has  not  been  entirely 
worked  out  in  American  municipalities,  but  it  is  the  model 
toward  which  certain  of  our  American  municipal  organi- 
zations have  been  moving  —  a  model  for  administrative 
efficiency  and  for  effective  direction  and  executive  control 
which,  in  turn,  must  find  its  safety  in  (i)  the  financial 
control  which  is  exercised  by  an  intelligent  board  of  direc- 
tors, the  council,  (2)  in  an  independent  accounting  service 
under  an  independent  and  intelligent  controller,  (3)  in  the 
independent  judicial  administration  of  the  courts,  pre- 
mised on  their  ability  at  all  times  to  obtain  full  evidence 
of  all  transactions  and  full  information  necessary  to  the 
6 


If 


w 


FINANCIAL  MANAGEMENT  OF  CITIES 


':i! 


IV 


enforcement  of  official  responsibility,  and  (4)  in  a  well- 
informed  electorate  exercising  popular  control  through  the 
election  of  a  chief  executive  and  the  consequent  possible 
reorganization  of  the  departmental  discretionary  official 
staff. 

When  these  conditions  are  not  present,  when  the  infor- 
mation for  the  exercise  of  intelligent  financial  control  is 
not  regularly  and  currently  available,  when  an  adequate 
Conditions  accounting  service  is  not  provided,  when  the 
under  which  judiciary  may  not  be  effectively  invoked 
decentralization  for  the  protection  of  the  public  trust  and 
is  preferable  evidence  is  lacking  by  which  judicial  control 
may  be  effective,  when  the  facilities  are  not  present  for 
keeping  the  electorate  informed,  the  more  effective  method 
of  government  may  be  one  of  decentralization  —  i.e.,  one 
of  dividing  up  the  functions  and  responsibilities  on  some 
council  or  commission  plan.  In  this  manner  the  lack  of 
records,  the  lack  of  needed  evidence  to  fix  responsibility, 
the  lack  of  reports  may  be.  supplied  in  the  same  manner 
as  in  a  small  private  business,  viz.,  by  personal  contact. 


CHAPTER  VI 
Principles  of  Budget  Making* 

The  budget  is  an  instrument  devised  to  give  to  the 
direct  representatives  of  the  people  control  over  adminis- 
trative officers.  Finding  its  origin  in  monarchical  govern- 
ment, it  has,  where  not  neglected,  become  one  of  the 
Constituent  ^^^^t  effective  limitations  of  administrative 
elements  in  authority.  According  to  democratic  ideals 
municipal  gov-  that  form  of  corporation  known   as  "  the 

emments  ^  i»   •  ,  , 

(jrovemment"  is  made  up  of  three  classes 
of  persons:  (i)  a  body  of  electors;  (2)  a  council  or 
board  of  representatives,  and  (3)  a  group  of  adminis- 
trative officers  and  corporate  employees.  The  corporation 
thus  composed  is  responsible  to  what  is  known  as  "the 
State"  —  i.e.j  to  the  poUtically  organized  body  of  citi- 
zens for  whose  protection  and  welfare  the  government  has 
been  created.  Each  of  these  three  classes  of  corporate 
agents  have  duties  to  perform  and  may  be  penalized  for 
not  performing  them.  In  the  interest  of  citizen  welfare 
each  is  given  a  distinct  form  of  governing  control:  To 
the  elector  is  given  popular  or  electoral  control;  to  the 
council  of  representatives  is  given  general  directive  or 
representative  control;  to  the  administrative  officer  is 
given  administrative  control. 

*  Journal  of  Accountancy,  October,  1907. 


It 


67 


I 


methods  of 
control 


«8  PRINCIPLES  OF  BUDGET  MAKING 


THE  BUDGET  AS  AN  INSTRUMENT  OF  CONTROL 

Corresponding  to  each  of  these  several  functions,  each 
has  developed  appropriate  instruments  through  which 
control  may  be  exercised  and  made  efiFective.  Control 
Primary  by  electors  is  effected  through  petition  and 

ballot,  by  which  means  electoral  initiative, 
selection,  and  sanction  are  expressed  in 
constitutional  and  charter  grants,  in  the  choice  of  repre- 
sentatives and  elective  officers,  and  in  instituting,  approv- 
ing, or  annulling  the  acts  of  representatives  and  elective 
officers.  To  the  representative  body  or  council  the  in- 
struments of  control  available  are  statute,  ordinance,  and 
budget  —  the  first  and  second  being  instruments  of  legal 
control,  the  budget  being  an  instrument  of  financial  con- 
trol. To  the  officer,  to  whom  is  given  the  duty  of  cor- 
porate management  and  of  administering  the  details  of 
business,  the  most  effective  means  of  control  over  the 
many  employees  for  whose  acts  he  is  held  responsible  and 
over  the  funds  and  properties  in  their  keeping,  is  his 
power  to  appoint,  suspend,  and  remove,  and  his  power 
to  induct  methods  by  means  of  which  the  organization 
under  him  may  be  made  effective. 


PRINCIPLES  OF  BUDGET  MAKING 


69 


CONDITIONS  PRECEDENT  TO  THE  EFFECTIVE  EXERCISE  OF 

CONTROL 

Each  of  these  three  controlling  groups  of  corporate 
agents  must  act  on  information  if  it  acts  wisely  and  effi- 
ciently. In  towns  or  other  governing  bodies  whose  terri- 
torial limits  are  too  wide  for  personal  sur- 
vey, whose  population  is  too  numerous  or 
too  diverse  to  retain  neighborly  contact, 
whose  activities  are  too  complex  for  the  citizen  to  observe, 
intelligent  action  on  the  part  of  the  elector  must  proceed 


Electoral 
control 


from  exact  knowledge  presented  in  the  form  of  reports. 
Are  constitutions  or  charters  to  be  voted  on?  To  act 
wisely  the  elector  should  have  a  full  and  accurate  state- 
ment, not  only  as  to  the  manner  in  which  the  old 
constitution  or  charter  has  operated,  but  also  a  well-con- 
sidered brief  as  to  the  manner  in  which  the  proposed 
measures,  if  adopted,  may  operate.  Are  candidates  pre- 
senting themselves  for  election  or  re-election  ?  Electoral 
control  can  be  inteUigently  exercised  only  after  a  full 
and  accurate  report  on  the  manner  in  which  those  who 
have  held  positions  of  trust  have  conducted  the  affairs 
of  the  corporation.  Are  measures  to  be  introduced  by 
competitive  or  popular  initiative?  Are  acts  of  repre- 
sentatives referred  for  popular  sanction?  Are  the  electors 
appealed  to  to  recall  those  who  have  been  appointed  to 
positions  of  responsibility?  Whatever  the  action  to  be 
taken,  an  electorate  which  is  unmformed,  instead  of  con- 
serving pubUc  welfare,  may,  by  appeal  to  prejudice  or  by 
demagoguery,  defeat  the  very  purpose  for  which  electoral 
control  is  established. 

The  same  is  true  of  acts  of  the  representative  body 
Effective  control  must  proceed  from  such  knowledge  of 

Representative    ^^^'?   ^}^^  inteUigent  judgment   may  be 
control  exercised.     Is  the  subject  for  consideration 

a  change  in  statute  or  ordinance,  or  the 
passing  of  the  budget?  Action  taken  which  does  not 
proceed  from  full  and  accurate  information  must  of  neces- 
sity be  abortive. 

The  officer  on  whom  rests  responsibility  for  adminis- 
trative control  is  under  the  same  necessity.  Each  official 
Official  control  ^^\  ^^^^  command  to  subordmates,  each 
business  transaction  coming  before  the  officer 
for  his  direction  or  approval,  should  be  premised  on  an 
mtimate  and  exact  knowledge  of  all  the  details  entering 


1 

1 

'I 


H 
■I 


70 


PRINCIPLES  OF  BUDGET  MAKING 


into  the  problem.  Without  such  information  tlie  officer 
is  a  helpless  incompetent  who  may  at  any  time  be  made 
the  victim  of  political  scandal.  Without  the  protection 
afiForded  by  full  knowledge  of  facts  prior  to  a  decision 
made  or  a  responsibility  executed,  reputation  for  honesty 
and  efficiency  is  at  all  times  in  jeopardy.  Even  when 
animated  by  the  best  of  intentions,  an  officer  who  acts  in 
ignorance  may  be  made  the  tool  of  a  coterie  of  persons 
seeking  to  subvert  the  powers  and  properties  of  govern- 
ment to  private  ends. 

Efficiency,  economy,  and  fidelity  —  these  have  come 
to  be  the  criteria  of  official  acts.  The  development  of 
such  qualities  in  a  government  is  not  so  much  a  matter 
of  men  and  measures  as  it  is  a  matter  of  method;  not  so 
much  men,  as  methods  by  means  of  which  full  and  accu- 
rate information  may  be  given  to  those  upon  whom  fall 
the  duties  of  exercising  control.  Given  the  methods  by 
means  of  which  the  full  situation  may  be  known  and  by 
mesins  of  which  responsibility  for  every  act  may  be  located, 
and  efficient  men  and  measures  will  necessarily  follow. 

METHODS   OF    OBTAINING    INFORMATION   AS    A    BASIS    FOR 

EXERCISE  OF  CONTROL 

The  needed  information  must  of  necessity  come  from 
those  who  are  in  direct  contact  with  the  business  of  the 
corporation.  The  method  has  to  do  with  the  recording, 
classifying,  and  reporting  of  this  information,  as  well  as 
with  the  means  of  directing  afiFairs  after  such  information 
has  been  recorded,  classified,  and  reported.  The  method 
itself,  therefore,  must  be  administrative.  It  must  relate 
Information  as  to  the  Collection  and  preservation  of  the 
a  basis  for  con-  evidence  of  efficiency,  economy,  and  fideUty 
and  to  the  locating  of  responsibility  for 
inefficiency,  waste,  and  infidelity.    New  charters  and  new 


PRINCIPLES  OF  BUDGET  MAKING 


71 


laws  cannot  produce  effective  public  service.  Any  instru- 
ment effectively  and  intelligently  used  is  preferable  to  a 
much  more  perfect  device  in  the  hands  of  the  uninformed. 
When  governments  have  been  subverted  to  private  uses, 
this  subversion  has  not  been  due  to  essential  defects  in  the 
law;  fundamental  laws,  which  estabHsh  the  several  forms 
of  control  enumerated,  together  with  the  broad  legal  and 
equitable  principles  of  tdira  vires  and  of  trusteeship,  are 
sufficient  to  protect  citizens  against  every  form  of  ineffi- 
ciency and  corruption.  To  reach  this  result,  special  laws 
and  specific  rules  and  regulations  are  not  necessary. 
Where  political  and  administrative  action  has  proceeded 
from  intelligence,  there  has  been  little  cause  for  complaint; 
where  charges  of  infidelity  have  been  supported  by  evi- 
dence, there  has  been  no  cause  for  pessimism.  Failure  in 
municipal  government  has  come  from  lack  of  evidence 
and  not  from  inadequacy  in  law. 

Nor  are  we  lacking  in  the  experience  as  to  administra- 
tive methods  which  will  enable  the  officer,  the  council, 
or  the  elector  to  obtain  full  and  complete  information  on 
every  subject  and  transaction  concerning  which  infor- 
mation is  needed  for  purposes  of  intelligent  control.  These 
The  experience  methods  have  already  been  established  in 
of  private  the   management   of   private   corporations, 

business  r^^^^  j^^^^  ^^  ^^^^  applied  to  different 

aspects  of  public  business.  It  remains  only  for  electors 
to  demand  and  insist  on  the  introduction  of  these  estab- 
lished methods  of  administrative  accounting  —  to  demand 
and  insist  on  the  introduction  of  scientific  methods  of 
obtaining  accurate  operative  data  —  to  demand  and  in- 
sist on  the  introduction  of  adequate  methods  of  recording 
the  evidence  by  means  of  which  responsibility  may  be 
located  for  each  order  or  advice  given  in  the  direction  of 
the  affairs  of  a  municipality.    In  a  word,  it  remains  only 


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72 


PRINCIPLES  OF  BUDGET  MAKING 


for  electors  to  shift  the  emphasis  from  men  and  measures 
to  methods  of  administration  and  to  demands  for  a  full 
and  accurate  knowledge  of  results  to  avail  themselves 
of  the  benefits  to  be  derived  from  both. 

In  the  past  the  safeguards  imposed  on  government  have 
been  negative.  Systems  of  check  and  balance  and  civil 
service  regulations  have  been  negative.  We  need  some- 
thing positive  —  methods  which  will  put  a  premium  on 
ability  and  honor.  When  a  method  shall  be  installed 
Safeguards  of  which  will  make  and  preserve  the  evidence 
the  past  ncga-  of  personal  credit  or  discredit  to  be  attached 
**^*  to  the  acts  of  each  oflScial  and  municipal 

employee,  then  and  not  till  then  will  municipal  adminis- 
tration lose  its  taint  and  men  and  measures  be  chosen 
with  the  same  assurance  that  now  obtains  in  industrial 
and  commercial  lines.  Without  methods  which  will  locate 
responsibility  for  inefiiciency  and  the  wasteful  use  of 
public  revenues,  a  premium  is  set  on  the  abuse  of  power 
and  privilege  and  honorable  citizenship  is  itself  ineffective 
as  against  persons  who,  though  publicly  condemned,  are 
publicly  subsidized  to  combine  their  resources  in  obtain- 
ing personal  gain  from  the  subversion  of  institutions  of 
public  welfare. 

CONTROLLING  PURPOSES  OF  THE  BUDGET 

The  immediate  purposes  of  the  budget  are  two:  (i)  to 
enable  a  representative  body,  charged  with  the  making  of 
proper  provisions  for  raising  revenues  and  the  protection 
of  funds,  to  exercise  control  over  the  officers  charged  with 

Significance  of  ^^^  details  of  administration  by  })lacing 
limitation  of  Hmitations  on  their  authority  to  spend; 
authority  to  (2)  by  estabUshing  such  limitations  of 
*'**°  authority,  thus  to   enable   the    controlling 

financial  of&cer  (in  most  cities  known  as  the  comptroller) 


PRINCIPLES  OF  BUDGET  MAKING 


78 


to  make  use  of  the  law  of  ultra  vires,  in  determining 
whether    claims    presented    constitute    legal    obhgations 
which  should  be  approved  by  him  for  payment.    The  act 
of  the  representative  body  by  which  the  budget  is  passed 
and  by  which  authority  to  spend  is  given,  is  called  an  act 
of  "appropriation"  —  an  act  setting  aside  or  reserving 
such  amounts  or  funds  of  the  corporation  as  may  be  there- 
in determined  and  set  forth.     In  most  municipalities  a 
council  or  board  of  aldermen  is  the  appropriating  body; 
in  some  of  the  larger  cities,  the  budget  originates  with  a 
specially  constituted  board  or  commission  which  is  charged 
with  the  determination  of  facts,  from  which  board  or  com- 
mission a  definitely  formulated  document  comes  to  the 
council  for  final  approval  or  adoption.    In  New  York, 
for  example,  this  specially  constituted  board  or  commis- 
sion is  known  as  the  Board  of  Estimate  and  Apportion- 
ment,   composed    of    the    mayor,    the    comptroller,    the 
president  of  the  board  of  aldermen,  and  the  five  borough 
presidents.    This  board  or  commission   (each  member 
being  elective)  receives  estimates  from  the  several  depart- 
ments or  divisions  of  city  government,  as  well  as  from 
private  institutions  asking  for  municipal  support,   and 
fixes  the  classification  and  maximum  limit  of  appropria- 
tions; with  the  budget  thus  formulated  it  goes  before  the 
Board  of  Aldermen  for  final  adoption  —  the  Board  of 
Aldermen  having  power  to  reduce  but  not  to  increase  the 
amount  of  any  item  contained  therein;  thereafter  it  goes 
to  the  mayor  for  his  approval  or  veto. 

As  commonly  used,  the  budget  operates  as  an  instru- 
Use  of  bud  et  ^^^^  ^^  negative  control.  For  this  purpose 
as  instrument  little  intelligence  is  required.  Any  one, 
of  positive  though  he  be  a  fool,  may  arbitrarily  say  to 

control  ^j^g  administrative  officer:  "You  may  have 

this  much,"  and  to  that  administrative  officer,   "You 


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74 


PRINCIPLES  OF  BUDGET  MAKING 


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may  have  that  much,"  to  spend  during  a  definite  fiscal 
period.  Any  board  or  representative  body  may  listen 
to  the  importunities  of  poHticians  or  may  make  a  hori- 
zontal reduction  to  bring  the  total  of  all  estimates  within 
a  given  tax-rate.  Negative  control  may  protect  the  tax- 
rate,  but  it  does  not  give  direction  to  an  intelligent  Represen- 
tative control  over  pubhc  service  nor  reward  competence 
and  honorable  dealing.  On  the  contrary,  it  encourages 
inefficiency  and  dishonesty.  It  puts  the  upright  ofl&cial 
into  competition  with  the  ward  politician  and  success  is 
made  dependent  on  party  organization  and  on  false  repre- 
sentation of  facts  in  the  padding  of  estimates  as  a  means 
of  obtaining  a  disproportionate  share  of  revenues  to  be  ex- 
pended as  party  spoil. 

The  use  of  the  budget  as  an  instrument  of  positive 
control  requires  mature  deUberation,  based  on  fuU  infor- 
mation. The  budget-making  body  is  a  council  of  repre- 
sentatives and  as  such  it  is  in  a  position  to  give  direction 
to  the  whole  corporate  policy  of  a  municipality.  The  sup- 
port to  be  given  to  every  function  and  activity  of  govern- 
ment is  within  its  keeping.  Not  only  is  it  within  its 
authority  to  estabhsh  a  policy  and  to  publish  to  each 
department  the  amount  of  support  to  be  granted  at  the 
beginning  of  each  fiscal  period,  but  also  by  revisory  acts 
and  transfers  to  change  this  policy  and  to  add  to  or  with- 
draw support  at  any  time  that  it  may  deem  such  action 
necessary  to  the  improvement  of  the  pubHc  service  or 
expedient  for  the  protection  of  popular  welfare. 

Looking  upon  the  budget  as  an  instrument  of  positive 
control  in  the  hands  of  a  representative  body  or  board, 
Administrative  ^  first  essential  to  this  effective  use  is  a  sys- 
accounts  as  tem  of  accounts  and  operative  statistics  by 
means  to  end  mgans  of  which  an  intelligent  conclusion 
may  be  reached  as  to  the  public  service  rendered  and  as 


PRINCIPLES  OF  BUDGET  MAKING 


75 


to  the  cost  of  such  service  in  each  of  the  several  depart- 
ments, divisions,  and  institutions  asking  for  public  support. 
In  a  municipality  numbering  its  activities  by  himdreds, 
its  employees  by  thousands,  and  its  expenditures  by  mil- 
Hons,  the  intelligent  making  of  the  budget  is  at  best  a 
difl&cult  process.  Not  only  is  the  work  of  each  depart- 
ment and  division  on  the  service  to  be  considered,  but  each 
function  and  activity  within  each  of  these  departments 
and  divisions  should  be  carefully  scrutinized  in  the  light 
of  public  necessity.  If  the  budget-making  body  is  to 
exercise  financial  control  intelligently  and  effectively,  it 
must  consider  (i)  whether  each  function  or  activity  which 
has  been  supported  should  receive  further  support;  (2)  the 
relative  pubfic  importance  of  each  function  and  activity 
to  the  general  administrative  scheme;  (3)  what  amount 
of  financial  support  is  necessary  to  maintain  this  relative 
importance,  from  the  point  of  view  of  the  public  and  its 
interest.  And  no  process  should  be  considered  as  too 
laborious  to  make  each  of  these  considerations  effective. 

MAKING  OF  THE  BUDGET 

By  reason  of  the  peculiar  position  of  the  board,  the  third 
subject  of  inquest  above  suggested  necessarily  comes  first. 
The  information  as  to  the  amount  of  support  needed  is 
first  sought  from  the  department  head.  Initially,  this 
inquisition  takes  the  form  of  a  request  for  estimates.  A 
common  form  of  request  is  that  each  estimate  shall  be 
accompanied  by  a  statement  as  to  the  cost  of  maintaining 
the  department  during  the  last  closed  fiscal  period  with 
the  proposed  increases  and  decreases  thereon  indicated. 

This  information,  however,  is  usually  de- 
of^csttoater*^"  fective  in  the  following  particulars:  First,  the 

expenditures  on  behalf  of  the  department 
may  be  shown  without  clearly  defining  whether  these 


76 


PRINCIPLES  OF  BUDGET  MAKING 


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expenditures  pertained  to  the  fiscal  period  under  con- 
sideration. Second,  if  the  cost  of  the  fiscal  period  has 
been  carefully  distinguished,  this  cost  may  not  be  set  out 
in  such  detail  as  to  make  it  intelligible.  Third,  if  set  out 
in  detail,  it  may  not  be  classified  in  such  manne  r  as  to 
show  the  cost  and  the  items  of  cost  relating  to  each  of 
the  functions  and  activities  maintained.  Fourth,  if  the 
cost  is  set  out  in  detail  by  function  and  activity,  the  state- 
ment may  not  be  accompanied  by  a  report  showing  the 
pubUc  services  performed,  such  services  being  properly 
related  to  the  cost  of  performing  them.  Fifth,  the  depart- 
ment may  not  be  asked,  or,  if  asked,  may  not  show  in 
what  direction  its  functions  and  activities  may  be  or  should 
be  developed  to  further  promote  the  public  welfare. 
Sixth,  if  such  statement  of  proposed  development  be  made, 
the  opinions  of  the  heads  of  the  departments  as  to  the 
relative  importance  of  public  service  at  present  performed 
and  of  the  suggested  new  or  enlarged  activities  may  not 
be  made  available  to  the  board. 

But  even  with  a  full  report  from  the  head  of  each  depart- 
ment on  all  of  the  subjects  above  indicated  before!  the  board, 
it  is  not  qualified  to  pass  the  budget.  Representations 
by  department  heads  are  not  the  best  evidence  either  as 
to  whether  all  the  present  activities  should  be  supported, 
what  amount  of  supi>ort  should  be  given 
to  each,  or  as  to  the  relative  importance  of 
the  work  of  the  department  as  a  whole  to 
the  general  administrative  scheme.  The  estimates  and 
reports  by  department  heads,  therefore,  should  be  re- 
ceived long  enough  in  advance  to  enable  the  budget- 
making  body  to  conduct  an  independent  and  collateral 
inquiry.  For  this  purpose  not  only  are  departmental 
accounts  and  service  records  from  which  every  essen- 
tial  administrative    fact    may    be    determined   a  prime 


Collateral  in- 
quiry 


PRINCIPLES  OF  BUDGET  MAKING 


77 


necessity,  but  also  an  independent  or  essential  service 
through  which  the  board  may  direct  the  investigation  — 
an  agency  which  may  stand  in  advisory  relation  to  the 
board  through  briefs  carefully  prepared  both  as  to  facts 
of  past  administration  and  as  to  prospective  needs. 

But  such  measures  and  such  service  do  not  exhaust 
the  possibilities  of  inquiry.  Independent  advice,  thus 
Publication  of  obtsiined,  does  not  put  the  board  in  a  po- 
estimates  of  and  sition  to  become  intelligent  inquisitors, 
examination  of  Preliminary  estimates  and  statements  of 
departmental  needs  should  be  made  pubUc 
in  order  that  the  people,  in  the  press  and  in  citizens'  or- 
ganizations, may  discuss  each  of  the  issues  presented. 
Heads  of  departments  may  be  cited  to  appear  and  answer 
interrogatories.  Citizen  bodies  may  be  heard  in  support 
of  the  enlarging  or  discontinuing  of  diflferent  branches  of 
the  public  service  in  which  they  may  be  interested. 

After  full  hearings  as  to  relative  needs,  the  board 
may  with  much  intelligence  fix  the  gross  amounts  to  be 
appropriated,  including  all  expenditures  for  the  succeed- 
ing year,  and  show  separately  amoimts  for  current  ex- 
penses, amounts  for  the  paying  of  deficiencies  in  past 
Formulation  of  appropriations  which  have  been  permitted 
tentative  budget  to  accumulate  in  the  form  of  claims  or  which 
and  tax-  h^ye  been  met  by  revenue  bonds,  as  well  as 

payers  earmg  g^j^^^j^i-g  provided  for  the  sinking  of  the 
funded  indebtedness.  Gross  budget  allowances  being 
tentatively  determined,  the  public  can  be  taken  into 
the  confidence  of  the  board  by  having  these  tentative 
schedules  published,  with  a  day  appointed  for  a  hear- 
ing in  order  that  taxpayers  may  appear  and  oppose 
or  support  the  tax-rate  necessary  to  providing  the  revenue 
needed  to  make  the  budget  effective.  By  some  such 
proceeding  the  budget-making  body  may  have  the  benefit 


I- 


78 


PRINCIPLES  OF  BUDGET  MAKING 


I 


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of  the  expression  of  public  opinion  at  every  important 
step  on  subjects  which  would  require  increase  or  decrease 
in  expenditures. 

A  conclusion  being  reached,  subject  to  review  as  to  the 
tax-rate,  further  important  information  may  be  elicited 
by  notifying  the  heads  of  each  department  as  to  its  appor- 
tionment, and  asking  them  for  written 
taqui^*"*^  advice  on  forms  submitted  as  to  how  the 
department  would  have  this  amount  dis- 
tributed among  the  several  functions  and  activities  to  be 
maintained.  This  apportionment  and  the  several  ad- 
vices being  published  and  time  being  given  to  consider, 
another  pubHc  session  maybe  had,  after  which  the  budget 
may  be  definitely  placed.  Whatever  procedure  be  fol- 
lowed, the  board  should  seek  to  avail  itself  of  every  source 
of  information  both  as  to  the  past  cost  and  as  to  the 
future  need  of  each  function  and  activity  to  be  main- 
tained, and  so  informing  itself  become  a  positive  force  in 
the  general  direction  and  control  of  departments  and 
administrative  officers. 

THE  ADMINISTRATIVE  IMPORTANCE  OF  THE  BUDGET 

In  this  relation,  something  may  be  said  of  the  adminis- 
trative importance  of  the  budget  and  of  the  conditions 
necessary  to  its  efifective  use.  The  budget  is  in  the  nature 
of  an  allowance.  As  to  whether  proper  use  is  made  of 
this  allowance  depends  on  administrative  intelligence  and 
control.  Efficiency,  economy,  and  fidelity  are  adminis- 
trative facts.  The  positive  purpose  of  the  budget  is  to 
As  related  to  give  direction  to,  and  place  limitations  on, 
methods  of  administration.  Administratively,  there  are 
two  general  methods  of  control  which  re- 
late themselves  to  the  budget:  (i)  control  by  the  audit 
and  vouching  of  claims  against  appropriations,  for  which 


PRINCIPLES  OF  BUDGET  MAKING 


79 


the  city  comptroller  is  responsible;  and  (2)  control  by 
the  executive  who  seeks  his  information  as  to  adminis- 
trative facts  in  current  reports  and  who  enforces  executive 
judgment  through  his  power  of  appomtment,  suspension, 
and  removal  of  departmental  heads. 

The  administrative  relation  of  the  chief  executive  to 
the  budget  has  in  large  measure  been  overlooked .  Definite 
allowance  having  been  made  for  the  support  of  certain 
public  functions  and  activities,  the  mayor  may  exercise 
a  most  wholesome  influence  in  general  supervision  over 
the  use  of  these  functions.  For  example,  an  appropria- 
tion may  be  made  to  the  board  of  health  for  salaries  and 
wages  under  the  general  title  of  milk  inspection.  Pre- 
suming that  the  board  of  health  may  desire  to  use  this 
money  for  political  purposes  on  the  approach  of  an  elec- 
tion, it  may  decide  to  expend  the  whole  amount  within 
three  months.  The  effect  of  such  a  decision  would  be 
to  defeat  the  purpose  of  the  appropriation.  Generally 
speaking,  the  public  service  is  to  be  a  continuous  one. 
In  the  audit  Executive  supervision  may  therefore  be 
^tjiTtof  ^^  exercised  to  prevent  a  disproportionate  ex- 
"^  penditure  at  one  time  and   a  consequent 

crippHng  of  the  service  or  making  necessary  supplementary 
appropriations  at  another.  In  every  such  case  where 
disproportional  expenditures  are  allowed  there  should 
be  clear  administrative  reasons  for  doing  so,  and  these 
should  be  brought  to  the  attention  and  discussed  with 
the  chief  executive.  This  form  of  administrative  con- 
trol must  be  enforced  through  prompt  and  frequent 
reports  rendered  by  the  several  departments  to  the  mayor, 
to  the  making  of  which  a  thorough  and  centrally  con- 
trolled system  of  administrative  accounts  is  a  prerequisite. 
Through  the  medium  of  reports  regularly  rendered,  through 
inspection  and  the  inquisitorial  powers  within  his  reach, 


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80 


PRINCIPLES  OF  BUDGET  MAKING 


the  chief  executive  may  also  prevent  the  forcing  the  hands 

of  the  council  by  over  spending  in  the  management  of 

certain  necessary  functions,  thus  requiring  that  provision 

be  made  for  their  maintenance  by  transfers  or  by  the 

issue  of  revenue  bonds.    Without  such  executive  control 

the  head  of  a  department  may  defeat  the  will  of  the  coimcil. 

Administrative  control  of  the  comptroller  requires  the 

keeping  of  an  account  with  each  appropriation,  against 

which  is  charged  all  vouchers  passed  on  claims  against 

the  same,  and  an  accurate  account  of  contracts  and  orders 

outstanding   which   may   ultimately   become   a   charge. 

Such  accounting  is  necessary  to  prevent  the  overreaching 

of  authority  on  the  part  of  department  heads.    To  these 

accounts  reference  should  be  had  in  the  audit  of  claims 

before  they  are  vouched  for  payment.    If  contracts  and 

orders  exceed  the  authority  given,  the  comptroller  not 

only  has  the  power  to  refuse  to  draw  a  warrant,  but  it  is 

his  duty  to  do  so.    In  fact  he  becomes  personally  Uable  for 

vouching  unauthorized  claims.    Nor  can  the  contractor 

compel  the  comptroller  to  act,  since  any  action  brought 

must  be  in  the  nature  of  a  proceeding  citing  the  comptroller 

to  appear  and  show  cause,  a  defense  to  which  action  is 

found  in  evidence  in  his  own  hands  showing  that  the  head 

of  the  department  exceeding  his  authority  acted  tdtra  vires, 

TRANSFERS  AND  REVENUE  BOND  ISSUES 

The  bugdet  is  essentially  an  authority  based  on  esti- 
mates. These  estimates  may  not  be  well  founded.  By 
means  of  the  budget  the  legislature  seeks  to  effectively 
direct  and  control  the  action  of  administrative  officers. 
In  this  its  power  is  complete,  as  it  may  limit  expenditure 
m  every  detail  which  it  would  directly  control.  Should 
its  estimate  be  found  to  be  inadequate  or  too  large,  it  can 
at  any  time  modify  the  authority  originally  given  in  so 


PRINCIPLES  OF  BUDGET  MAKING 


81 


far  as  the  officer  to  whom  authority  has  been  given  has 
not  incurred  obligations  which  operate  as  claims  against 
the  fimds  voted.  These  modifications  usually  take  the 
form  of  transfers  —  a  certain  amount,  by  subsequent  act, 
being  withdrawn  from  one  use  and  definitely  appropriated 
to  another.  Modifications  of  this  kind,  however,  should 
be  made  only  after  due  consideration,  since  the  head  of 
the  department  should  be  permitted  to  make  his  plans 
and  execute  them  without  unnecessary  interference  being 
held  responsible  for  results.  Before  transfers  are  made 
at  the  request  of  the  head  of  a  department,  careful  scrutiny 
should  be  given  to  determine  whether  or  not  the  will  of 
the  legislative  body  is  not  being  defeated  by  subterfuge, 
one  function  or  activity  of  public  importance  being  weak- 
ened for  the  benefit  of  another  in  which  the  administra- 
tive head  may  have  some  special  interest. 

Should  the  f imction  or  activity  for  which  supplementary 
support  is  asked  prove  a  worthy  one,  and  no  appropria- 
tion for  another  purpose  be  available,  the  legislative  body 
still  has  authority  under  many  charters  to  issue  bonds  in 
anticipation  of  future  levies.  As  such  issues  must  of 
necessity  become  charges  against  future  revenues,  the 
legislature  must  have  sufficient  reason  to  cause  it  to  fore- 
stall the  activities  of  future  administrations  by  support 
given  to  the  present.  The  practice  when  regularly  in- 
dulged in  leads  to  an  increase  in  the  funded  debt  — a 
result  which  is  wrong  in  principle,  being  in  the  nature  of 
the  capitalization  of  expenses,  or  the  deferring  of  the 
operating  cost  of  the  present  to  be  met  by  a  future  genera- 
tion. Such  a  practice  if  continued  must  ultimately  impair 
the  credit  of  the  mimicipality.  Only  emergencies  which 
may  not  be  foreseen  should  warrant  the  issue  of  bonds  for 
current  expenses,  the  retainment  of  which  should  be  imme- 
diately provided  for  in  subsequent  budgets  and  tax  levies. 
7 


f! 


!| 


f        • 

t         I 


1^1 


CHAPTER  VII 

A  Business  Man  at  the  Head  of  a  City's  Business 

Office  * 

We  have  just  heard  from  the  business  head  of  a  great 
public  corporation  that  he  is  not  a  reformer  —  that  he 
is  simply  trying  to  give  to  his  city  a  business  a^iminis- 
tration.  I  do  not  know  just  what  opprobrium  is  attached 
to  the  word  reformer  as  used  in  this  strenuous  denial,  but 
if  Comptroller  Metz  succeeds  in  redeeming  his  pre-election 
pledge,  i.e.,  if  he  succeeds  in  doing  what  he  affirms  he 
is  still  striving  for,  —  he  will  prove  the  greatest  among 
reformers.  If  he  fails,  then  must  not  he  accept  for 
''the  business  man"  some  of  the  odium  attached  by  him 
to  the  term  "reformer"? 

Two  years  ago  the  comptroller  of  the  city  of  New  York 
was  mstalled  m  its  central  business  office  — an  office 
through  which  about  $500,000,000  of  business  passes 
each  year  for  his  approval  —  an  office  designed  to  pro- 
tect the  city  from  loss  on  this  great  volume  of  transactions 
—  an  office  no  less  important  than  that  of  the  mayoralty. 
Comptroller  Metz  was  elected  on  the  issue  of  "a  business 
a  business  man  for  the  head  of  a  city's  business  office." 
man's  admis-     He  came  to  the  task  with  a  wide  business 

sion  of  failure  •  1  .... 

expenence,  and  a  reputation  for  accom- 
plishment; he  has  devoted  himself  to  the  office  with  the 
same  energy  and  ability  that  applied  to  his  private  affairs 
has  placed  him  at  the  head  of  large  industrial  and  com- 

» Address  before  the  City  Club  of  New  York,  February  la,  1908. 

82 


A  BUSINESS  MAN  IN  OFFICE 


8S 


mercial  undertakings.  He  has  spent  long  hours  in  the 
city's  service;  he  has  not  only  worked  alongside  the  clerical 
staff  of  the  department  of  finance  during  office  hours, 
but  day  after  day  he  might  be  found  applying  himself 
to  pubUc  affairs  after  his  office  staff  had  gone  home  and 
after  three-fourths  of  the  public  whom  he  served  had 
left  their  private  businesses.  How  signally  he  has  failed 
to  keep  his  pre-election  promise  to  date,  we  have  his  own 
words.  He  has  just  told  the  members  of  the  city  club  — 
an  organization  whose  business  it  is  to  take  note  of  every 
neglect  to  civil  duty  —  **  that  the  city's  money  is  simply 
being  thrown  away";  ^'that  the  comptroUer  is  practicaUy 
helpless  to  protect  the  city  except  there  be  a  complete 
reorganization  of  the  department  of  finance  and  a  com- 
plete revision  of  the  city's  administration  and  accounting 
methods";  ''that  the  comptroller  is  being  peddled  every 
day  m  the  week";  that  by  hard  work  he  is  able  to  "catch  a 
few  things  here  and  a  few  things  there,  but  the  mass  of 
details  is  so  great  that  with  aU  the  vigilance  one  man  can 
exercise  the  city  treasury  is  being  plundered  from  all 
sides." 

The  confession,  startling  as  it  may  seem,  carries  with 
it  a  hopeful  lesson  in  civics.  When,  in  our  political  think- 
ing, we  shall  have  reached  the  point  of  considering  the 
The  lesson         machinery  and  processes  of  public  business, 

^e'^c^-^^*""  ^  ^^^  ^  *^^  character  of  man  who  is 
ure  carries  placed  in  control  of  the  business  office, 
when  we  accept  the  conclusion  that  a  relatively  incom- 
petent man  with  a  superior  instrument  may  accomplish 
more  than  a  highly  competent  man  with  an  inferior  in- 
strument, when  we  appreciate  the  fact  that  graft  is  to 
be  accounted  for  by  the  evolutionary  theory  of  the  sur- 
vival of  the  fittest,  and  that  the  "good  man"  who  is 
elected  to  office,  and  the  "business  man"  without  means 


R 


' 


84 


A  BUSINESS  MAN  IN  OFFICE 


of  governing  intelligently,  as  compared  with  the  party 
boss  and  his  army  of  well-organized  and  well-informed 
grafters,  are  unfit,  then  we  may  know  why  it  is  that  a 
Tammany  chief  makes  the  better  mayor  and  a  more 
efficient  alderman. 

A  subject  of  present  consideration  is  the  city  debt, 
and  in  this  relation  the  comptroller  has  made  public 
this  evening  a  new  debt  statement.  As  a  preface  he  tells 
us  that  for  two  years  he  has  tried  —  by  use  of  the  account- 
ing means  at  hand,  and  with  the  assistance  of  one  of  the 
expert  accountants  in  the  department  of  finance— -to 
definitely  establish  the  amount  of  the  city's  outstanding 
Another  side  obligations,  but  that  the  best  he  can  say 
to  the  subject  for  the  Statement  just  made  public  is  that 
of  municipal      it  is  probably  withm  $20,000,000  of  the 

institutions  i         /-«        •  1     • 

truth.  Considenng  the  fact  that  the  city 
of  New  York  has  the  constitutional  debt  Hmit  staring  it 
in  the  face,  perhaps  nothing  that  Mr.  Metz  could  say 
would  better  support  the  conclusion  that  the  instruments 
with  which  he  has  to  work  are  not  what  they  should  be. 
After  listening  to  the  address  of  the  comptroller  on  the 
volume  of  indebtedness,  and  address  of  the  president  of 
the  department  of  taxes  and  assessments  as  to  the  method 
of  determining  the  debt  limit,  if  there  is  anything  that  I 
might  add,  it  would  be  to  tell  you  why  a  "business  man" 
may  find  himself  helpless  in  the  city's  central  business 
office,  and  how  the  method  of  business  organization  and 
procedure  may  affect  the  problem  of  municipal  debt. 

WHY  A  BUSINESS  MAN  MAY  FIND  HIMSELF  HELPLESS  IN  A 

BUSINESS  OFFICE 

Before  considering  the  reasons  for  the  present  helpless- 
ness of  our  "business  man"  at  the  head  of  the  city's 
central  business  office,  let  us  get  in  mind  just  what  may 


A  BUSINESS  MAN  IN  OFFICE 


85 


be  expected  of  him  under  the  present  charter.  On  its 
administrative  side.  New  York  has  had  applied  to  it  more 
charter  remedies  for  incompetence  and  graft  than  any 
city  in  the  United  States.  The  state  assembly  has  usually 
been  controlled  by  an  opposition  political  party.  Not 
a  legislature  has  closed  its  deliberations  without  acting 
favorably  on  some  proposal  which  has  proceeded  from 
the  opposition  in  the  government  of  the  city.  The  most 
advanced  theories  of  organization  looking  toward  increas- 
mg  efficiency  and  fideUty  of  municipal  service  have  been 
enacted  into  law,  and  as  the  publicist  has  turned  from 
theories  of  laissez-faire  to  those  of  centralized  power  and 
centralized  administrative  control,  central  administrative 
authority  has  been  strengthened  that  responsibility  may 
be  laid  on  the  chief  executive  heads.  The  mayor  is 
Legal  powers  ^^^  personally  responsible  for  efficiency 
with  which  our  in  the  municipal  service  on  the  operative 

wTcrthT  f^^  ""^  ^^^  government.  The  comptroller 
is  made  responsible  for  passing  on  all 
financial  relations  of  the  city.  Legally,  he  is  in  much 
the  same  relation  to  the  city  as  a  trustee  of  a  great 
private  corporation  who  is  vice-president,  chairman  of 
the  finance  committee,  and,  under  the  constitution  and 
by-laws,  responsible  to  the  board  and  stockholders  for 
the  administration  of  all  the  central  business  functions, 
including  (i)  the  making  of  contracts  and  purchases; 
(2)  the  issue  and  retirement  of  bonds  and  temporary 
loans;  (3)  the  purchase  of  real  estate;  (4)  passing  on 
construction  and  betterments;  (5)  the  collection  of  all 
revenues  and  accounts  receivable;  (6)  the  setdement  and 
payment  of  all  claims;  (7)  the  guardian  of  all  trusts  for 
the  benefit  of  the  municipality  or  for  which  he  is  liable 
for  an  accounting. 
That   these   responsibilities  may  be  enforced    (a)  he 


86 


A  BUSINESS  MAN  IN  OFFICE 


II 


has  been  given  a  seat  on  the  board  of  aldermen;  (h)  is 
given  three  votes  in  the  board  of  estimate  and  apportion- 
ment, is  made  one  of  the  three  sinking  fund  commissioners; 
(c)  is  made  one  of  three  trustees  for  the  selection  of  city 
Legal  means  of  depositories;  (d)  is  made  one  of  the  three 
enforcing  trustees  for  the   head  of  a  great  central 

powers  purchasing  agency  (the  board  of  city  record) ; 

(e)  is  required  to  be  present  in  person  or  by  representation 
at  the  opening  of  all  bids;  (/)  must  pass  on  the  sufficiency 
of  security  deposits  and  must  certify  all  contracts  before 
they  become  valid;  (g)  must  approve  all  claims  before 
payments  and  sign  all  warrants  on  the  city  treasury; 
(h)  must  issue  all  bonds;  (i)  audit  all  collections  and 
revenue  receipts;  (J)  prescribe  the  forms  in  which  all 
accoimts  and  all  financial  and  statistical  reports  shall  be 
kept  and  rendered  in  every  department  and  by  every 
officer  and  agent  of  the  city.  Such  are  the  powers  with 
which  our  business  man  was  clothed  when  he  accepted 
the  position  of  comptroller  of  the  city  of  New  York. 
Among  the  first  public  utterances  he  announced  that 

he  wanted  the  public  to  understand  that  he  was  no  " 

rubber  stamp,"  that  before  he  placed  his  name  on  an 
Conditions  o^cial  document  he  would  know  the  facts, 
which  have  With  all  these  powers,  with  ordinances, 
cause^  the  bust-  budgets,  and  resolutions  authorizing  con- 
tracts and  other  liabilities  coming  con- 
stantly before  him,  with  thousands  of 
proposals  for  bids,  with  as  many  thousands  of  contracts 
to  be  certified,  with  hundreds  of  claims  to  be  passed  each 
day  and  as  many  warrants  to  be  signed,  with  millions  of 
bonds  to  be  issued,  markets  and  other  properties  to  be 
managed,  permits  to  be  granted,  leases  to  be  entered  into, 
by  what  organization,  and  by  what  instruments  in  his 
hands,  might  he  be  able  to  perform  these  duties  with 


A  BUSINESS  MAN  IN  OFFICE 


87 


ness  head  to 
admit  defeat 


intelligence?  What  are  the  administrative  conditions 
which  caused  the  comptroller  to  admit  that  he  has  been 
''peddled";  that  he  has  been  used  as  a  ''rubber  stamp," 
while  "the  city's  money  is  simply  being  thrown  away"? 

To  perform  the  functions  of  his  ofl&ce  and  properly 
protect  the  city,  there  must  be  a  system  of  oflficial  intel- 
Ugence  as  far-reaching  as  his  responsibilities.  Every 
ordinance  or  resolution  proposed  should  be  accompanied 
by  a  complete  and  well-digested  brief  as  to  the  facts  on 
which  action  is  to  be  based.  And  for  the  accuracy  and 
completeness  of  this  report  some  one  in  subordinate 
position  should  be  held  liable.  With  every  contract  to 
be  certified  there  should  be  a  complete  statement  of  the 
imencumbered  balance  of  the  appropriation 
or  fund  against  which  it  is  to  be  charged; 
every  voucher  to  be  passed  and  every  war- 
rant drawn  should  be  accompanied  by  such 
evidence  as  would  enable  a  court  to  pass  on 
its  justice  and  legality;  every  new  issue  of 
bonds  should  be  accompanied  with  a  thorough  statement 
of  present  indebtedness;  every  collection  made  should  be 
audited  with  respect  to  competent  evidence  of  the  amoimt 
due  and  which  should  have  been  collected.  To  the  end  of 
protecting  the  city  against  loss  and  waste,  the  comptroller 
should  have  within  his  reach  complete  information  as  to 
properties  and  equipment  owned;  he  should  also  have 
at  hand  the  means  of  readily  determining  the  city's  lia- 
bilities and  responsibilities  as  trustee. 

Whatever  his  aversion  to  serving  as  a  "  rubber  stamp," 
the  comptroller  soon  found  that  by  force  of  circumstances 
A  system  which  he  was  being  used  as  a  convenient  tool  of  a 
compels  official  great  system  of  private  gain  which  made 
ignorance  official  ignorance  its  opportunity.    Instead 

of  intelligence  being  focused  in  the  official  who  is  respon- 


Administrative 
conditions  es- 
sential to  the 
intelligent  ex- 
ercise of 
powers 


,"  I 


88 


A  BUSINESS  MAN   IN  OFFICE 


sible  under  the  law,  knowledge  of  the  city's  business 
was  centred  in  a  number  of  small  local  groups  of  civil 
service  employees,  who  in  turn,  through  personal  con- 
tact, kept  those  in  outside  poUtical  affiliation  informed; 
between  the  civil  servant  and  the  central  office  there  was 
a  wall  so  inpenetrable  as  to  be  impervious  either  to  light 
or  to  sound.  Instead  of  the  records  containing  evidence 
which  would  enable  our  business  man  to  know  the  exact 
status  of  transactions,  the  only  way  provided  was  a  process 
of  inspection  and  detection  which  would  ignore  and  go 
behind  all  records.  Even  this  service  depended  for  its 
success  on  personal  fidelity  to  the  central  officer,  and  most 
of  the  inspectors  being  attached  to  several  local  centres 
of  information,  no  clue  was  left  by  which  central  business 
intelligence  might  be  gained  or  local  business  responsi- 
bihty  might  be  fixed. 

To  be  more  concrete:  Although  the  comptroller  was 
legally  responsible  for  the  certification  and  the  validation 
of  obligations  incurred  in  excess  of  the  debt  limit,  millions 
of  dollars  of  liabilities  were  not  set  up  on  the  books  of 
the  finance  department:  (i)  there  was  no  accounting 
record  of  condemnations  authorized,  although  by  such 
acts  the  city  obtained  legal  title  and  became  liable  for 
the  payment  of  the  cost  of  such  properties;  (2)  there  was 
no  accounting  record  of  contracts  for  the  purchase  of 
real  estate;  (3)  there  was  no  accounting  record  of  non- 
contract  claims  filed  against  the  city  or  of  actions  pending 
or  of  judgments  obtained  for  damages  and  on  other  non- 
contract  claims;  (4)  there  was  no  accounting  record  of 
Lack  of  ac-  ^P^^  market  orders,  although  millions  of 
counting  rcc-      these  Were  outstanding,  as  charges  against 

iTabumr^^      ^"^^^  ^^^  appropriations,   and   which   in 
many  instances  overdrew  unencumbered  bal- 
ances; (5)  there  was  no  record  of  orders  issued  against 


A  BUSINESS  MAN  IN  OFFICE 


89 


contracts  or  of  engineering  estimates  of  work  completed 
under  contracts  for  construction,  although  it  was  the 
practice  to  register  these  contracts  against  bond  fund 
and  corporate  stock  authorizations,  before  the  bonds 
were  sold  and  before  any  funds  were  available  with  which 
to  meet  such  claims  when  presented  for  payment;  (6) 
there  was  no  accounting  record  of  invoices  payable  for 
goods  received  and  used  by  the  city,  thus  constituting  a 
legal  claim  for  debt  although  there  were  miUions  of  such 
liabilities  outstanding,  in  many  cases  in  excess  of  authori- 
zation; (7)  that  there  was  no  central  accounting  record 
even  for  vouchers  payable,  although  there  were  milHons 
of  such  vouchers  in  the  departments  and  in  the  hands  of 
the  bureau  of  clerks  and  auditors  of  the  department  of 
finance;  (8)  that  the  first  knowledge  which  the  chief 
accountant  and  general  bookkeeper  of  the  central  account- 
ing office  had  of  any  claim  against  the  city  or  of  any 
charge  against  appropriations  or  funds  was  after  a  war- 
rant had  been  prepared  after  the  voucher  had  been 
audited,  ready  for  the  signature  of  the  comptroller,  and 
this  in  many  instances  was  months  after  the  transaction 
out  of  which  the  claim  arose  —  possibly  months  after  the 
voucher  had  been  certified  to  the  department  of  finance. 
This  left  each  local  group  of  civil  employees  who  had  any 
contact  with  the  city's  business,  and  the  heads  of  depart- 
ments and  bureaus,  entu-ely  without  central  control,  free 
to  deal  with  the  city's  creditors  in  any  manner  they  chose; 
it  also  left  the  comptroller  and  the  mayor  in  such  ignorance 
of  liabilities  against  the  city  that  when  a  bond  issue  of 
$40,000,000  was  planned  to  meet  current  demands  during 
the  next  three  months,  the  city  was  unable  to  keep  faith 
either  with  bond  buyers  or  with  other  creditors. 

Generally  speaking,  the  records  pertaining  to  every 
branch  and  division  of  the  business  for  which  the  comp- 


II 


If 


90 


A  BUSINESS  MAN  IN  OFFICE 


troller  was  responsible  were  in  the  same  primitive  and 
chaotic  condition.  Not  only  was  there  an  utter  lack  of 
records  in  many  essential  particulars,  but  such  accounts 
as  were  kept  in  the  department  of  finance  bore  no  direct 
relation  to  the  detailed  records  of  the  several  departments 

Noreution        ^^^"^    "^.^'^^    ^^^    comptroUer    was    legaUy 
between  the  ac-  responsible  for  this  exercise  of  control  as  to 
counts  in  de-      their  accuracy  and  as  a  protection  to  the 
SJTkept"*    ^'^y  ^S^!^^*  the  infideUty  of  employees.  The 
central  office      appropnation  and  fund  accounts  kept  in 
the  departments  were  charged  with  vouchers 
payable.    In  the  department  of  finance  no  account  was 
taken  of  vouchers;  all  charges  were  made  from  warrants; 
between  the  voucher  charges  and  the  warrant  charges 
were  all  vouchers  m  transit,  all  vouchers  held  in  the  bureau 
of  audit,  all  corrections  of  vouchers  and  warrants,  and  all 
transfers  of  which  the  department  received   no  notice. 
Moreover,  the  warrants  payable  were  registered  in  the 
department  of  finance  by  boroughs,  while  the  control  to 
be  exercised  was  by  departments.    If  a  studied  eflFort 
had  been  made  to  defeat  every  possibility  of  accoimting 
control,  a  more  eflFective  method  could  not  have  been 
devised.    The   most   generous   interpretation    that   may 
be  given  to  the  accounting  procedure  in  use  in  the  depart- 
ment of  finance  is  to  assume  that  those  who  have  acted 
in  the  capacity  of  experts  had  no  support  m  such  efforts 
as  they  may  have  put  forth  to  bring  system  out  of  chaos 
since  the  time  of  consolidation,  to  ascribe  the  result  to  a 
process  of  evolution,  the  directmg  forces  in  which  had 
been  in  organizations  and  alliances  interested  in  defeating 
official  intelligence.    Like  Topsy,  the  business  procedure 
had  "just  growed,"  and  there  were  m  it  as  many  kinks 
as  in  Topsy's  unkempt  hair. 


A  BUSINESS  MAN  IN  OFFICE 


111 


HOW   ORGANIZATION    AND    METHODS    OF    ADMINISTRATIVE 
PROCEDURE  MAY  AFFECT  MUNICIPAL  DEBT 

Returning  to  the  problem  of  municipal  indebtedness: 
The  organization  and  methods  of  administrative  procedure 
may  afifect  municipal  debt  in  one  or  more  of  three  ways: 
(i)  Through  lack  of  information  as  to  the  amount  of  the 
debt,  the  constitutional  limit  may  be  exceeded  and  the 
price  of  bonds  affected  by  casting  doubt  on  the  legaUty 
of  issues.  (2)  Through  inabihty  to  exercise  central  con- 
trol over  expenditures,  the  amount  of  the  debt  may  be 
largely  increased  (a)  by  the  payment  of  unjust  and  exces- 
sive claims,  and  (b)  by  the  charging  of  current  expenses 
against  special  revenue  bond  funds  and  corporate  stock 
funds.  (3)  Through  inability  to  exercise  central  control 
over  revenues  and  collections,  (a)  the  city  may  obtain 
money  on  revenue  bonds  in  anticipation  of  taxes  which 
ultimately  must  be  refunded  by  issues  of  permanent  debt, 
and  (6)  revenue  to  which  it  is  jusdy  entided  for  meeting 
expenses  and  the  reduction  of  debt  may  not  be  collected. 

The  first  of  these  results  has  akeady  been  discussed 
at  length  by  the  comptroller.  Twice  during  the  last  year 
the  city  has  been  unable  to  keep  faith  with  bond  buyers 
on  account  of  the  amount  of  unknown  Uabihties  which 
Doubt  may  be  Suddenly  became  known  after  the  treasury 
cast  on  legality  had  been  replenished.  With  the  city  close 
to,  if  not  exceeding,  the  debt  hmit,  the  market 
for  every  issue  offered  must  of  necessity  be  affected. 
The  principal  investing  constituency  to  which  the  city 
must  appeal  is  the  savings  banks.  Approximately 
$300,000,000  of  the  city's  issues  are  reported  to  be  in 
institutions  of  this  class.  If  any  question  may  exist  which 
would  take  these  purchasers  out  of  the  market,  or  what 
is  still  more  to  the  point,  cause  state  superintendents  of 


f 


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banking  to  discredit  the  issues  at  present  held,  the  city 
would  be  seriously  hampered  in  its  borrowings,  and  the 
taxpayer  would  have  an  increased  burden  to  bear. 

The  second  result  (inability  to  exercise  central  control 
over  expenditures)  is  even  more  serious.  By  the  present 
method  and  procedure  the  audit  required  by  charter  is 
Increase  of  a  farce.  If  evidence  were  present,  each 
debt  through  signature  affixed  to  a  considerable  propor- 
faUure  to  audit  ^^^^  ^^  ^j^^  warrants  drawn  on  the  treasury 

would  constitute  a  crime.  A  proper  audit  of  a  claim 
is  the  judicial  review  of  the  evidence  supporting  it  for 
the  purpose  of  passing  on  its  legality  and  its  justice. 
If,  in  the  opinion  of  the  auditor,  the  legality  of  the 
claim  is  not  properly  supported,  it  is  his  duty  to  reject 
it;  in  case  the  amount  claimed  is  not  properly  supported, 
it  is  the  duty  of  the  auditor  to  withhold  decision  till  the 
evidence  is  complete  and  then  to  reduce  the  amount  to 
which  in  his  judgment  the  claimant  is  justly  entitled. 
This  is  the  charter  purpose  in  creating  the  bureau  of  audit 
in  the  department  of  finance  and  making  it  independent 
of  all  administrative  interference  in  the  exercise  of  its 
discretion.  The  action  of  the  chief  auditor  is  subject 
only  to  review  by  the  comptroller,  and  after  him,  by 
the  courts. 

What  is  the  character  of  evidence  on  which  more  than 
$100,000,000  worth  of  claims  are  passed  each  year  by 
the  bureau  of  audit?  Over  one-half  of  this  amount  is  in 
The  present  the  form  of  pay-rolls.  With  these,  no  evi- 
audit  of  claims  dence  whatever  is  presented  as  to  service 
a  arce  rendered.    The  approvals  of  heads  of  de- 

partments are  accepted  although  it  is  known  that  no  time 
records  are  kept  and  no  certificates  are  exacted  from  those 
who  have  knowledge  as  to  whether  employees  are  even 
present  at  the  respective  stations  named.     Between  the 


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93 


head  of  the  department  and  the  bureau  of  audit  the  cer- 
tification of  the  civil  service  commission  is  interposed, 
but  this  is  formal  except  as  to  the  fact  that  the  employees 
are  properly  listed.  In  passing  this  class  of  claims  there 
is  not  a  line  of  evidence  reviewed,  and  not  a  signature  of 
a  person  affixed  to  a  document  who  has  any  knowledge 
either  as  to  the  validity  or  the  justice  of  the  claim.  Even 
in  the  department  of  finance,  no  record  is  kept  from  which 
a  pay-roll  may  be  reviewed,  yet  a  person  falsely  certifying 
may  be  held  responsible  for  forgery  or  for  conspiracy. 
Men  have  been  away  from  their  posts  for  weeks  at  a  time 
in  the  bureau  of  audit  itself,  and  others  have  been  in  a 
drunken  condition  at  their  posts,  yet  the  pay-rolls  have 
been  passed.  It  is  no  wonder,  therefore,  that  men  on 
the  city  pay-roll  are  regularly  employed  as  bartenders 
and  in  other  occupations,  not  even  taking  the  time  to 
come  to  a  city  office  to  draw  their  pay. 

Claims  for  suppUes  purchased  are  regularly  passed 
with  quite  as  little  evidence.  To  the  claim  is  attached 
no  competent  proof  that  goods  ordered  are  received  in 
the  quality  and  quantity  required.  A  receipt  may  be  at- 
tached, but  no  method  is  provided  for  determining  whether 
the  receipt  is  false.  Goods  may  be  short  in 
weight,  they  may  be  below  grade,  they  may 
not  have  been  deUvered  at  all;  yet  no  method 
revived  ^^^^^  ^^  employed  in  the  department  for  locating 
responsibility  for  authorizations  to  audit. 
Certificates  are  regularly  attached  when,  in  the  very  nature 
of  the  circumstances,  the  one  certifying  could  not  receive 
the  goods.  As  a  protection  against  this  lack  of  account- 
ing procedure  in  the  departments  for  holding  purchasing 
agents,  storekeepers,  and  others  responsible  for  fidelity, 
the  bureau  of  audit  has  provided  itself  with  a  corps  of 
inspectors  who  are  required  to  certify  to  the  facts  of 


Claims  passed 
for  supplies 
without  evi- 


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mi 


11 


delivery,  etc.,  but  no  notice  is  received  of  the  existence 
of  an  order,  an  invoice,  a  delivery,  or  a  claim  against  the 
city  to  be  audited  imtil  the  goods  have  been  consumed, 
the  repairs  have  lost  all  marks  of  identity,  or  the  construc- 
tion has  been  covered  up.  Nevertheless,  the  inspectors 
of  the  bureau  assume  to  affix  their  certificates  as  evidence 
for  the  auditors  to  consider  in  passing  the  claims,  the 
auditors  knowing  that  an  actual  inspection  was  not  made. 

Not  alone  is  the  loss  to  the  city  due  to  such  procedure 
to  be  counted  by  the  millions  of  excessive  and  unjust 
claims  actually  paid  on  the  approval  of  auditors  of  the 
Inspections  department  of  finance  and  on  warrants 
used  to  further  signed  by  the  comptroller  relying  on  such 
^^  approvals,   but   the    practices  which   have 

grown  up  have  practically  driven  honest  competition  for 
city  business  out  of  the  market.  A  large  portion  of  con- 
tracts are  handled  by  those  who  keep  in  touch  with  per- 
sons whose  influence  is  a  guarantee  of  payment,  without 
embarrassing  delays  and  inquiries.  Those  who  will  not 
resort  to  such  practices  refuse  to  make  contracts  and 
deliveries  except  at  prices  which  are  unfavorable  to  the 
city.  Instead  of  being  able  to  purchase  to  great  advantage 
by  reason  of  the  large  quantities  consumed,  the  city  pays 
higher  prices  for  goods  than  the  smallest  consumer. 

Indirectly  the  city  debt  is  affected  by  the  excessive  ex- 
pense to  which  the  city  is  put  by  these  practices.  Direcdy 
the  city  debt  is  increased  by  the  false  charges  made  to 
Debt  increased  Corporate  stock  and  revenue  bond  funds, 
by  false  If  a  horse  is  purchased,  it  is  purcliased  out 

charges  to  cor-  of  monies  obtained  by  a  sale  of  fifty-year 
bonds,  although  the  life  expectancy  of  the 
horse  may  not  exceed  ten  years;  the  harness  and  the  carts 
are  purchased  out  of  fifty-year  bonds;  the  oats  fed  to  the 
horse  may  be  purchased  out  of  fifty-year  bonds;  then  as 


A  BUSINESS  MAN  IN  OFFICE 


96 


a  means  of  supplementing  the  supply  of  fertilizer  used  to 
keep  the  grass  green  about  the  stables,  horse  manure  is 
purchased  out  of  fifty-year  bonds.  It  has  become  a  regu- 
lar practice  to  direct  as  much  of  the  expenses  as  possible 
to  corporate  stock  and  spend  revenue  bond  funds  as  a 
means  of  making  the  appropriation  go  farther.  It  has 
been  roughly  estimated  that  not  less  than  $25,000,000  of 
the  present  debt  of  the  city  has  been  incurred  for  current 
expenses,  in  violation  of  law,  and  with  the  approval  of  the 
comptroller  and  his  auditors. 

Again,  the  debt  of  the  city  has  been  swelled  by  excessive 
prices  paid  and  extortionate  claims  allowed,  which  in 
their  nature  are  direcdy  chargeable  to  corporate  stock. 
Among  these  are  contracts  for  construction  and  purchases 
of  real  estate.  In  conversation  with  persons  having 
knowledge  of  municipal  construction  work  —  contractors 
and  engineers  —  the  lowest  estimate  received  of  the  per- 
centage which  the  city  has  to  pay  for  the  structures  and 
equipment  above  what  the  same  structures  and  equip- 
ment would  have  cost  private  corporations  was  twenty-five 
per  cent.  Several  of  these  estimates  ran  between  fifty  per 
cent  and  one  hundred  per  cent.  The  amount  of  the  excess 
will  never  be  known  for  the  same  reasons  that,  with  the 
Extension  present  method  and  procedure,  the  amount 

through  con-  of  excess  paid  on  supplies  may  not  be  de- 
termined. But  certain  it  is  that  so  long  as 
the  amounts  of  these  claims  passed,  and  the  contracts  of 
construction  may  not  be  directly  controlled  from  a  cen- 
tral business  office,  responsibility  for  this  form  of  graft 
may  not  be  fixed,  and  the  city  will  have  its  ability  to  pro- 
vide itself  with  other  needed  improvements  reduced  by 
the  amount  of  the  added  debt  incurred.  In  purchases 
of  real  estate  many  cases  of  extortion  have  become  no- 
torious.   The  one  thing  lacking  in  this,  as  in  other  unjust 


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M 


claims  which  have  been  audited,  is  evidence  —  evidence 
which  will  fasten  responsibility,  and  without  which  the 
comptroller  may  not  intelligently  exercise  the  functions 
of  his  office. 

Neither  is  there  any  method  installed  and  administered 
under  central  accounting  control  which  will  hold  persons 
responsible  for  properties  and  goods  in  their  keeping. 
Equipment  may  be  neglected  or  destroyed,  stocks  of 
goods  wasted  or  given  away  without  detection.  With 
millions  of  goods  delivered  to  storehouses  each  year  there 
inabUity  of  con-  ^^  scarcely  a  store  account  kept  in  the  city 
troUer  to  fasten  from  which  the  Storekeeper  may  be  held 
responsibility  accoimtable  for  goods  received  and  dis- 
®*^  bursed.  An  incident  is  told,  the  truth  of 
which  cannot  be  vouched  for,  but  which  in  its  possi- 
bilities will  serve  as  well  to  illustrate.  A  stock  of  goods 
is  said  to  have  been  removed  from  one  storehouse  to  an- 
other; it  is  related  that  the  stock  consisted  of  metal  goods 
and  tools  of  considerable  value.  As  the  drivers  were 
going  along  the  street,  a  boy  on  each  wagon  is  said  to  have 
been  busy  dropping  tools  and  castings,  while  a  wagon  be- 
longing to  a  private  party  followed  after  picking  them 
up.  In  most  stores  this  device  would  be  unnecessary, 
as  considerable  amounts  might  be  diverted  without  any 
one  being  held  even  for  dismissal  from  the  service. 

Let  us  turn  to  the  third  general  method  of  ellecting  this 
debt  —  by  lack  of  control  over  revenue.  It  is  through 
revenues  that  sinking  funds  are  created.  Many  of  them 
have  been  pledged  by  the  city  to  this  end.  In  the  water 
department  all  surplus  revenues,  outside  of  Manhattan, 
Sinking  fund  go  to  the  sinking  fund.  The  expenses  of  the 
revenues  may  dock  department  are  paid  out  of  corporate 
stock  and  the  revenues  go  to  the  sinking 
fund.     Over  these  revenues,  the  comptroller  has  no  means 


A  BUSINESS  MAN  IN  OFFICE 


97 


of  exercising  control.  In  the  water  department,  for  ex- 
ample, there  is  no  way  for  the  comptroller  to  know  whether 
the  charges  have  been  properly  made,  or  whether  the 
cash  returned  corresponds  to  the  charges  shown  on  the 
books.  In  fact  the  charge  ledgers  are  never  balanced. 
The  revenues  from  docks  and  ferries  were  not  under 
central  control  and  the  receipts  are  not  audited  by  the 
comptroller.  Over  the  bureau  of  city  revenue,  controlling 
accounts  have  been  estabhshed  by  the  general  book- 
keeper, but  these  are  set  up  from  the  report  of  the  superin- 
tendent of  markets  as  to  what  they  should  be,  and  then 
he  is  given  credit  for  what  he  turns  in.  These  controlling 
accounts  serve  no  administrative  purpose,  and  the  receipt 
vouchers  are  not  audited  to  determine  that  the  amount 
returned  is  what  should  have  been  collected. 

An  example  of  the  character  of  records  and  evidences 
available  for  the  audit  of  receipts  is  found  in  the  bureau 
of  licenses  —  a  branch  of  the  mayor's  office.  Over  thirty 
difiFerent  classes  of  licenses  are  issued  from  this  office  in 
denomination  from  $.25  to  $500.00.  These  are  all  written 
from  a  common  form  of  printed  blank  license  book.  As 
the  license  is  issued  a  note  is  made  in  the  stub  to  indicate 
General  fund  the  class  and  amount.  These  stubs  are 
revenues  may  used  as  a  basis  for  checking  the  cash  book. 
In  many  instances  licenses  renewed  are 
issued  at  half  the  rate  charged  for  originals.  On  the  stub, 
renewals  are  indicated  by  the  letter  R.,  originals  are  indi- 
cated by  the  letter  N.  As  the  old  Ucenses  expire  and  are 
surrendered,  instead  of  being  preserved  in  the  office  they 
are  regularly  thrown  into  the  waste  basket,  thus  destroy- 
ing all  original  evidence  and  leaving  the  stubs  as  an  undis- 
puted record. 


8 


I 


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A  BUSINESS  MAN  IN  OFFICE 


CONDITIONS    UNDER    WHICH    CENTRAL    CONTROL    MAY    BE 

MADE  EFFECTIVE 

With  admissions  of  inefficiency  Comptroller  Metz  has 
indicated  the  business  man's  remedy  —  viz.,  ^*  a  com- 
plete reorganization."  Admission  of  failure  to  redeem 
his  campaign  pledge  during  the  last  two  years  is  not  for 
him  an  admission  of  defeat.  His  two  years  of  experience 
he  proposes  to  turn  to  public  advantage.  What  is  the 
programme  announced  for  the  next  two  years  ?  Recogniz- 
ing neglect  of  their  plain  charter  duties  on  the  part  of 
his  predecessors  to  provide  the  means  of  exercising  con- 
trol over  the  financial  transactions  of  the  city,  the  con- 
troller purposes:  (i)  to  so  reorganize  the  department  of 
finance  as  to  equip  it  with  the  mechanism  of  accounting 
control;  (2)  to  so  revise  the  accounts  as  to  enable  those 
in  controlling  position  to  determine  the  accuracy  with 
which  departmental  accounts  are  kept  and  the  fideUty 
of  employees  responsible  to  the  city  for  an  accounting; 
(3)  to  devise  and  install  a  method  and  procedure  of  doing 
business  which  will  provide  the  evidence  necessary  to 
the  determination  of  the  justice  of  claims  against  the  city 
and  responsibility  for  any  failure  to  provide  such  evi- 
dence; (4)  to  reorganize  the  bureau  of  audit  and  revise 
its  methods  in  such  manner  that  such  claim  approved 
will  be  considered  in  the  light  of  supporting  evidence  as 
to  its  justice;  (5)  to  provide  both  the  evidence  and  the 
means  of  control  over  revenues  receivable  and  collections 
of  revenues  due  the  city;  (6)  under  a  completely  con- 
structed system  of  accounts  to  enable  the  city  to  get  off 
a  true  balance  sheet  and  a  true  revenue  and  expense 
accoimt  within  a  few  days  after  the  close  of  each  month, 
and  to  have  such  statistical  and  operative  reports  made 
as  to  enable  the  mayor  and  the  board  of  estimate  and 


A  BUSINESS  MAN  IN  OFFICE 


apportionment  to  exercise  executive  and  budgetary  con- 
trol over  the  several  functions  and  activities  of  govern- 
ment. 

In  publishing  this  programme  the  comptroller  has  set  for 
himself  a  task  which  is  difficult  to  execute.  It  means  a 
complete  revision  of  the  methods  and  procedure  of  busi- 
ness. It  means  the  training  of  some  sixty  thousand  civil 
servants  in  new  ways  of  doing;  it  means  the  establishing 
under  central  control  of  new  institutional  habits  —  an 
undertaking  which  will  require  every  grain  of  nerve  fibre 
which  the  comptroller  can  command,  and  an  energy 
which  a  man  of  less  experience  and  strenuous  habits 
would  not  possess.  If,  after  two  years,  this  end  shall 
have  been  accomplished,  then  may  the  electors  of  the 
city  hope  that  the  *' business  man"  who  may  be  induced 
to  accept  responsibiUty  for  the  comptrollership  may 
protect  the  city  from  those  who  would  divert  the  funds 
raised  for  pubHc  service  to  private  ends.  Then  may 
the  citizens  of  New  York  hope  to  inteUigently  cope  with 
such  problems  as  protection  to  life,  health,  and  property, 
adequate  education  to  the  young,  the  management  of 
docks  and  ferries,  and  water  supply.  But  so  long  as 
the  "business  man"  is  forced  to  accept  defeat,  what  hope 
is  there  that  the  "good  man"  who  has  been  elected  on 
account  of  his  eminent  respectabiUty  will  be  able  to  ad- 
minister our  great  corporation  in  such  manner  as  to  pro- 
tect the  common  welfare  and  reflect  credit  to  himself. 


PI 
I 


i| 


m 


CHAPTER  Vin 

Municipal  Accounts  —  A  First  Step  Toward 
Municipal  Reform^ 

Before  the  establishment  of  modem  democratic  ideals, 
the  common  people  were  little  concerned  with  government. 
They  lived  under  a  regime  in  which  poUtical  control  was 
regarded  as  a  prerogative  of  a  privileged  class  and  n?venues 
as  perquisites  of  office.  In  so  far  as  questions  of  economy 
and  fidelity  of  subordinates  were  considered,  these  did 
not  seriously  disturb  the  peace  of  mind  of  the  governed. 
Against  this  regime  there  was  revolt  on  the  part  of  the 
tax-paying  industrial  and  commercial  classes.  Those 
who  had  been  ruled  over  asserted,  and  finally  by  revolu- 
tion established,  the  doctrine  of  popular  sovereignty. 
Increased  personal  freedom  and  the  power  of  popular 
control  over  affairs  of  State  were  purchased  at  the  price 
of  increased  civil  responsibility.  Casting  off  the  bonds 
of  political  servitude,  those  who  before  had  no  business 
to  engage  their  thought  other  than  their  private  affairs 
placed  on  their  own  necks  the  yoke  of  civic  duty.  And 
as  the  demands  of  civiUzation  have  become  more  exacting 
the  burdens  of  pubHc  business  have  increased. 

the   responsibilities   of   citizenship   under   demo- 
cratic government 

According  to  the  tenets  of  modem  poUtical  faith,  the 
people  are  sovereign;  the  Government  is  the  corporate 

>  Paper  published   in    the   Political   Science   Quarterly,  September, 


FIRST  STEP  TOWARD  REFORM 


101 


1904, 


100 


agent  through  which  public  welfare  is  to  be  concemed. 
The  government  at  one  time  monarchical  now  has  its 
powers  and  duties  circumscribed  by  constitution,  statute, 
Popular  con-  ^^^  ordinance.  The  Government  being 
troi  over  the  degraded  from  regal  position  to  the  status 
public  corpora-  of  pubUc  servant,  its  activities  are  still 
further  reduced  to  possibilities  of  popular 
control  by  its  own  limitations  and  necessities:  As  a  legal 
incorporeal  being,  its  primary  limitation  appears  in  its 
inability  to  act  except  through  officers  and  agents  whose 
election  or  appointment  is  made  the  subject  of  popular 
choice;  its  encumbering  necessity  is  foimd  in  the  impo- 
tence of  its  agents  to  act  effectively  when  not  provided 
with  physical  equipment  —  the  means  of  procuring  which 
is  indirectly  or  directly  made  subject  to  will  of  the  people. 
In  poHtical  organization,  therefore,  the  people  (we  may 
say  the  business  people)  have  imposed  upon  themselves 
responsibihty  for  the  exercise  of  sound  discretion  both 
in  the  selection  of  poUtical  agents  and  in  the  voting  of 
supplies;  and  as  a  means  to  an  inteUigent  exercise  of  these 
functions  they  likewise  have  taken  upon  themselves  the 
,^    ,    ,  duty  of  inquiry  into  the  details  of  adminis- 

Ideals  of  pop-       ,     , .  rni      \  1      t  <. 

uiar  control  tration.  1  he  two  standards  of  popular 
judgment  and  control  are  found  in  the 
business  principles  of  fidelity  and  economy.  Or  to  state 
these  doctrines  in  terms  of  political  dogma,  the  first  is 
contained  in  the  familiar  adage  —  ''A  public  office  is  a 
public  trust'' ;  the  second  is  as  cogently  expressed  in  the 
phrase  —  "  The  duty  of  the  Government  through  .its  officers 
is  to  render  the  largest  possible  service  at  the  least  possible 
cost.''  To  successfully  carry  these  two  business  principles 
over  into  politics,  it  is  not  enough  for  the  citizen  body  to 
retain  to  itself  the  legal  powers  of  control  over  its  official 
trustees,  but  it  must  also  provide  itself  with  the  means 


102 


FIRST  STEP  TOWARD  REFORM 


of  exercising  intelligent  supervision  over  the  administrative 
ax;ts  of  its  representatives  and  agents. 

FAILURE    TO    PROVmE    THE    MEANS    NECESSARY    TO 
ENLIGHTENED    POLITICAL    JUDGMENT 

To  meet  this  last  condition  is  what  American  citizen- 
ship has  failed  to  do.  Nor  is  the  assignment  of  neglect 
one  which  should  be  stated  in  terms  of  culpability.  The 
American  people  are  not  of  that  fri\'olous,  careless,  publicly 
irresponsive  temper  so  often  represented  by  superficial 
FaUure  to  pro-  observers  and  ignorant  but  disaj)pointed 
vide  conditions  enthusiasts.  When  called  on  to  make  a 
o   contro  decision  on  any  weU-defined  political  issue, 

subsequent  years  have  in  almost  every  case  proved  the 
wisdom  of  "the  judgment  of  the  majority."  Neither  are 
those  in  official  position  the  time-serving  miscreants  that 
they  are  too  commonly  portrayed.  The  most  of  those 
who  have  risen  to  positions  of  confidence  and  trust  have 
been  men  of  ability,  honesty  of  purpose,  wishing  to  spare 
no  pains  to  conserve  the  welfare  of  the  community. 

The  present  condition  is  in  part  due  to  the  reactionary 
laissez-faire  policy  under  which  our  Government  was 
established.  This  doctrine  was  essentially  the  pnxluct  of 
resistance  and  aversion  to  conditions  which  ceased  to 
exist  in  the  minds  of  demagogues  except  after  the  Revolu- 
tionary War.  In  part,  the  present  situation  is  due  to  the 
agricultural  life  of  a  people  strongly  moral, 
who  were  also  inspired  by  a  wholesome 
respect  for  social  well-being.  With  few 
community  functions  to  be  exercised,  with  little  motive 
to  infidehty  in  office,  with  every  act  of  the  officer  under 
the  public  eye,  the  business  of  government  might  well  be 
delegated  to  any  one  whose  intelligence  would  commend 
him,  and  who  could  find  time  and  social  interest  to  pay 


Doctrines  of 
laissez-faire 


FIRST  STEP  TOWARD  REFORM 


103 


attention  to  pubhc  duty.  In  the  meantime,  the  simple 
service  for  common  good  being  thus  disposed  of,  citizen 
electors  devote  themselves  strenuously  to  the  paramount 
struggle  with  nature;  they  give  their  attention  to  private 
enterprise  without  official  interference  or  annoying  bur- 
dens from  taxation.  Periodically  the  people  came  together 
to  hear  report  from  those  who  had  been  entrusted  with  the 
expenditure  of  common  revenues,  and  to  decide  on  the 
pubhc  work  and  pubhc  levies  of  another  term. 

Conditions  have  changed.  From  agricultural  employ- 
ment, we  have  turned  to  mining,  to  manufacture,  and  to 
commerce.  To  this  end  the  people  have  come  together 
in  large  working  groups,  great  cities  have  grown  up.  The 
same  intensity  of  purpose  and  the  same  strict  adherence 
to  principles  of  private  economy  and  business  fidehty 
which  caused  the  pioneer  to  react  against  official  control 
and  excessive  burdens  of  state  have  developed  larger  and 
still  larger  industrial  groups  aroimd  which 
population  has  centred.  Within  a  genera- 
tion national  characteristics  have  become 
essentially  urban.  There  has  been  a  com- 
plete change  in  social  conditions  and  in 
demands  for  public  corporate  service;  but  in  the  strenu- 
ous pursuit  of  private  business  citizen  activities  in  govern- 
ment have  not  kept  pace  with  pubhc  need.  Not  until 
the  last  few  years,  when  increased  burdens  of  taxation 
have  fixed  attention  on  pubHc  administration,  have  the 
people  stopped  to  inquire  whether  multiphed  duties  and 
responsibilities  of  citizenship  have  been  attended  to. 

As  in  all  business  enterprise  broader  activities  require 
a  revision  of  method  to  insure  inteUigent  control.  Of 
one  fact  we  feel  sure  —  that  there  has  been  much  waste 
of  revenue  and  of  resource  in  the  administration  of  cities. 
A  second  conclusion  is  frequently  arrived  at  —  largely 


Conditions 
demanding 
increase  in 
government 
activities 


104 


FIRST  STEP  TOWARD  REFORM 


by  inference  —  that  public  officials  have  been  faithless. 
Attempting,  however,  to  base  our  poHtical  judgment  on 
exact  knowledge,  we  strike  a  vital  weakness  —  we  are 
unable  to  determine  at  what  points  waste  has  occurred 
Provision  of  or  to  fix  responsibility  for  loss.  Evidence 
methods  of  con-  is  lacking.  As  a  result  of  this  condition 
troi  necessary  ^£  g^g^jj-g^  neither  officer  nor  taxpayer  is 
able  to  apply  a  remedy  to  prevent  extravagance  in  the 
use  of  public  funds,  or  to  conceive  a  plan  to  insure  fidelity 
of  service.  In  such  circumstances  many  of  our  most 
intelligent  and  public-spirited  citizens,  after  a  few  spas- 
modic efforts  at  reform,  have  resigned  municipal  politics 
to  fate,  while  others  still  struggling  in  the  dark  are  seeking 
a  method  by  which  intelligent  direction  may  be  given  to 
public  affairs.  Realizing  from  evidence  at  hand  that 
there  is  lack  of  economy,  or  feeling  that  the  civic  institu- 
tion is  being  made  the  prey  to  piratical  enterprise,  many 
voices  of  command  are  heard  in  the  gloom  calling  the 
way,  but  quite  as  often  damage  is  done  by  misguided 
loyal  citizenship  as  by  those  who  are  careless  of  duty  or 
actively  betraying  public  trust.  The  prayer  of  despairing 
reform  crying  in  the  darkness  lacks  one  essential  plea, 
"Let  there  be  light"  —  the  light  that  may  be  slicd  by  a 
better  devised  system  of  public  accounts  and  by  regular 
and  accurate  reports. 

ACCOUNTANCY  AS  A  GUmE  TO  INTELLIGENT  ADMINISTRA- 
TIVE AND  POLITICAL  CONTROL 

Accoimtancy  is  the  science,  or  in  practice  an  art  or 

profession,   which    attempts    to    deal  with  the  data  of 

business.     A  system  of  accounts  is  a  method 

The  data  of  «      •      i   i_     i       •  i       >i     . 

business  devised  by  busmess  men,  or  by  tlieir  pro- 

fessional advisers,  for  the  purpose  of  obtain- 
ing accurate  information  about  problems  of  administration 


V 


FIRST  STEP  TOWARD  REFORM 


105 


and  stewardship.  With  the  enlarged  scope  of  private 
business,  the  advisory  aspect  of  accoimtancy  has  risen 
to  the  dignity  of  a  profession,  the  purpose  of  which  is 
to  examine  and  report  a  true  statement  of  affairs  and  to 
devise,  install,  and  supervise  methods  of  currently  and 
accurately  assembling  the  data  of  an  enterprise  in  such 
manner  as  to  give  the  best  basis  for  judgment  for  the 
successful  direction  of  undertakings.  Without  a  system 
of  accounts,  successful  management  of  even  our  smaller 
concerns  would  be  impossible;  many  a  bankrupt  may 
trace  his  downfall  to  the  ignorance  which  comes  from 
failure  to  provide  a  means  of  enlightened  control. 

A  city  carries  on  business  of  large  proportions  —  a 
business  so  complex  in  its  organizations  that,  without 
a  complete  system  of  accounts,  officers  cannot  intelli- 
gendy  perform  the  duties  imposed  upon  them.  Without 
a  system  of  record  which  will  reduce  transactions  to  state- 
Facts  that  are  ments  of  final  account  which  reflect  admin- 
not  forthcom-  istrative  results,  a  large  city  is  hopelessly 
^  in  the  dark.     Being  inducted  into  office  for 

a  short  term  without  a  knowledge  of  affairs  which  may 
come  from  records  in  which  are  assembled  the  data 
necessary  to  enlightened  judgment,  it  is  a  tribute  to  the 
ingenuity,  integrity,  and  superiority  of  American  public 
officers  that  they  have  done  so  well.  Many  of  them  have 
gone  to  great  lengths  to  inform  themselves  with  respect 
to  a  municipal  situation  which  should  have  been  an  open 
book. 

Before  taking  up  in  detail  the  inquiry  as  to  what  a  proper 
system  of  municipal  accounts  may  do  to  lay  the  founda- 
ciasses  of  finan-  tion  for  reform,  it  may  be  admitted  without 
ciai  transac-  controversy  that  there  are  four  classes  of 
^^^^  persons  interested  in  an  intelligent  view  of 

the  financial  transactions  of  municipalities,  viz.:   (i)  the 


106 


FIRST  STEP  TOWARD  REFORM 


citizens  and  taxpayers  who  are  responsible  for  the  choice 
of  officers  and  who  must  bear  the  financial  burdens 
of  government;  (2)  the  officers  and  pubUc  agents  chosen 
by  electors  to  manage  the  affairs  of  the  corporation  and 
who  become  responsible  as  guardians  of  public  proper- 
ties, as  well  as  for  intelligent  administration;  (3)  those 
who  have  become  investors  in  mimicipal  securities  and 
municipal  warrants;  and  (4)  the  political  scientist  and 
the  student  of  mimicipal  finance  and  administration.  A 
second  assumption  may  with  equal  confidence  be  engaged 
—  that  for  an  intelligent  understanding  of  the  affairs  of 
a  municipality  by  any  or  all  of  these  parties  in  interest, 
and  for  sound  thinking  concerning  the  problems  of  admin- 
istration, the  public  corporation  should  be  recognized  as 
acting  in  two  distinct  legal  capacities,  viz.:  (i)  as  a  pro- 
prietor and  (2)  as  trustee;  in  each  of  these  two  relations 
there  should  be  a  separate  and  distinct  financial  record 
and  account. 

For  the  enlightenment  of  all  parties  in  interest  with 
respect  to  the  acts  and  tr2insactions  of  the  city  whether 
as  proprietor  or  as  trustee  the  same  subjects  of  inquiry 
above  suggested  are  present,  viz.:  (i)  that  which  looks 
toward  economy  of  administration  and  which  has  in  mind 
primarily  the  relation  of  cost  to  service  rendered,  and 
(2)  that  which  looks  to  relations  oi  fidelity  or  an  account- 
ing of  officers  and  authorized  agents  for  the  properties 
Relations  of  entrusted  to  them  and  for  liabiUties  incurred 
proprietorship  by  them,  for  which  the  city  shall  become 
and  trusteeship  responsible.  If  under  a  democratic  poUtical 
regime  these  correctly  represent  the  main  subjects  of 
citizen  or  official  inquiry,  then  it  would  seem  that  the 
following  premise  is  self-evident:  that  for  the  purpose 
of  satisfying  the  demands  of  all  parties  interested  in 
mimicipal  affairs  (whether  inquiry  be  directed  toward  an 


FIRST  STEP  TOWARD  REFORM 


107 


understanding  of  past  operations,  present  conditions,  or 
questions  of  future  policy),  the  financial  data  should  be 
collected  around  these  two  main  subjects  (economy  and 
official  fidelity),  and  that  in  the  classification  and  co- 
ordination of  such  data  the  transactions  of  the  corporation 
as  proprietor  should  be  segregated  and  kept  entirely  dis- 
tinct from  its  acts  as  trustee. 


THE  PROGRESS  OF  ACCOUNTING  SCIENCE  IN  RESPONSE  TO 

ADMINISTRATIVE  DEMANDS 

Responding  to  the  increasing  administrative  demands 
of  business  there  have  been  developed  two  distinct  methods 
of  account.  A  historical  statement  may  illustrate  both 
the  purpose  and  the  conditions  under  which  they  have 
been  applied.  Scientific  methods  of  accounting  were 
first  evolved  in  private  enterprise.  For  this,  exact  knowl- 
edge and  sound  judgment  were  necessary  to  survival. 
In  private  enterprise,  some  method  which  would  guard 
the  fidelity  or  faithful  accounting  for  assets  and  UabiHties, 
Primitive  and  which  would  insure  the  strictest  economy, 

methods  of  was  prerequisite.  Gradually,  as  the  gov- 
inteiiigence  ernment  and  the  control  of  pubUc  corpora- 
tions became  more  popular,  and  as  the  commercial  and 
industrial  classes  gained  and  exercised  the  dominant 
influence  in  public  affairs,  rules  of  private  thrift  were 
translated  into  principles  of  public  well-being;  there  has 
come  to  be  an  increasing  demand  for  strict  fidelity  and 
economy  in  public  administration.  With  this  demand 
for  intelligent  statement  of  the  doings  of  officers  and 
corporate  trustees  the  methods  of  financial  analysis  evolved 
and  employed  in  public  business  for  the  purpose  of  secur- 
ing economy  and  effective  control  have  been  to  some  extent 
applied  to  municipaUties. 

In  the  development  of  the  methods  of  accountancy 


"r 


108 


FIRST  STEP  TOWARD  REFORM 


there  have  been  four  distinct  steps.    In  enterprises  which 

have  been  under  the  control  of  a  single  individual,  and 

which  were  not  so  large  that  every  detail  and  transaction 

might  not  be  performed  by  the  proprietor  himself,  in 

such  small  and  primitive  enterprises  the  records  have 

been  unsystematic,  incomplete,  and  without  method  — 

in  other  words,  certain  memoranda  may  have  been  kept, 

but  no  attempt  was  made  to  employ  a  method  of  scientific 

classification  and  no  strict  account  was  kept.    This  may 

be  referred  to  as  a  state  of  development  in  which  there 

was  no  account. 

Proceeding  from   a  condition   of   "no   account"   the 

evolution  has  been  as  follows:  (i)  As  enterprises  became 

more  complex  and  as  it  became  necessary 
Evolution  of        ^  ^      ^  ^  J  ^     .  .  r 

modem  methods  ^^  entrust  agcnts  and  representatives  with 

transactions  pertaining  to  certain  portions 
of  the  business,  a  form  of  partial  or  incomplete  accounts 
was  resorted  to  which  would  require  a  statement  pertain- 
ing to  properties  and  liabilities  or  relations  of  business 
fidelity.  Examples  of  this  kind  of  accounting  are  found 
in  institutions  which  keep  nothing  but  a  cash-book.  Such 
a  system  continues  to  be  used  in  some  small  private  busi- 
nesses, and  it  is  the  system  in  vogue  in  nearly  all  of  our 
American  cities  and  is  the  present  method  of  the  British 
Imperial  Government  as  well  as  of  our  own  State  and 
Federal  Governments.  This  is  what  may  be  termed  an 
incomplete  method  of  single-entry  accounts,  i.e.,  a  sys- 
tem of  entries  in  accounts  showing  in  an  incom])lete  way 
the  single  relation  —  official  fideHty  or  trusteeship.  (2)  A 
still  higher  development  in  private  business  has  produced 
what  we  may  term  a  complete  single-entry  system  —  a 
system  of  record  in  which  all  the  data  of  financial  transac- 
tions are  first  collected  in  memorandum  form  and  then 
coordinated  in  statements  of  final  account,  but  still  a 


FIRST  STEP  TOWARD  REFORM 


109 


system  in  which  the  accoimts  have  to  do  with  categories 
of  proprietorship  and  official  trust  only.  By  such  a 
method  a  strict  account  may  be  had  of  assets,  and  a 
statement  may  be  made  of  Uabilities  outstanding.  This 
method  is  well  adapted  to  holding  officers  and  agents  to 
strict  account  for  custodianship,  but  it  contains  no  prin- 
ciple and  involves  no  classification  of  items  which  will 
give  information  with  respect  to  any  relation  of  adminis- 
trative economy.  (3)  The  need  and  increasing  demand 
for  statements  which  would  reflect  the  various  transactions 
and  state  them  in  summaries  of  expense  and  financial 
return  (as  a  means  of  determining  relations  of  cost  to 
amount  of  service  rendered),  and  the  further  need  of 
reflecting  the  good  judgment  of  managers,  led  to  the 
introduction  in  private  business  of  what  is  known  as  a 
double-entry  system  of  accounts.  This  method  or  system 
has  two  distinct  categories,  viz. :  (i)  those  of  proprietorship 
and  official  trust  (or  asset  and  Hability) ;  and  (2)  categories 
of  economy  of  administration  (or  expense  incurred  and 
income  accrued).  In  the  first  application  of  such  a 
system  to  pubHc  accounts,  however,  the  records  are 
necessarily  incomplete.  Omissions  are  made  of  certain 
transactions  and  financial  relations  that  may  take  years 
of  experience  to  install;  such  a  system  may  be  called  an 
incomplete  double-entry  system  of  accounts.  Example  of 
omissions  of  the  accounts  referred  to  are:  Failure  to  set 
up  reserves  against  current  revenues  receivable,  where  for 
good  reason  they  are  encumbered  or  made  unavailable; 
failure  to  account  for  depreciation  or  the  current  wear 
and  tear  to  properties  which  have  not  been  repaired,  and 
consequently  not  made  an  item  of  current  expense;  failure 
to  record  accruals  of  interest  payable,  consequently  not 
getting  the  charge  within  the  proper  fiscal  period ;  failure 
to  record  accruals  of  expense  of  administration,  leaving 


'i        1 1 


! 


I* 


110 


FIRST  STEP  TOWARD  REFORM 


'i: 


m 


4 


i 


these  to  be  met  by  subsequent  administrations;  failure  to 
set  up  judgments  against  the  city  as  a  part  of  current 
liabilities,  etc.  The  final  development  of  this  method 
of  accounting  is  a  complete  double-entry  system  —  i.e.,  a 
method  or  system  of  collecting  all  of  the  financial  data 
pertaining  to  the  business  and  of  classifying  this  under 
categories  (a)  of  economy,  and  (b)  of  proprietorship  and 
official  trust. 

DEVELOPMENTS    OF    METHODS    OF    CONTROL    IN    BRITISH 

CITIES 

The  first  marked  advances  toward  modem  public 
accounting  were  made  in  response  to  the  need  for  pub- 
Ucity  and  for  reliable  summaries  and  statements  of  the 
financial  condition  of  semi-public  enterprises.  Among  the 
pubHc  acts  directed  toward  this  end  were  those  following 
railway  speculation  in  the  fourth  and  fifth  decades  of 
the  last  century.  The  abuses  which  had  grown  out  of 
this  character  of  promotion  in  England,  and  the  failures 
that  followed  the  absence  of  strict  financial  control,  were 
the  reasons  for  the  enactment  of  the  "companies*  clauses 
consolidation  act "  (8  vict.,  CXIX).  Under  the  provision 
First  step  ^^  ^his  act,  auditors  were  to  be  appointed 

toward  a  better  by  the  Stockholders  of  the  corporations  at 

cXr*"  ^''*'  ^^^^^  r^g^^T^  meeting,  and  these  auditors 
were  empowered  to  employ  accountants  to 
assist  them  in  making  reports,  or  in  framing  such  reports 
as  were  prepared  by  the  officers  themselves  for  the 
information  of  the  stockholders.  The  reports  of  the 
auditors  when  appointed  were  to  include  a  certificate 
as  to  the  correctness  of  the  balance  sheet.  They  were 
also  to  give  a  "distinct  view  of  the  Profit  and  Loss  which 
shall  have  arisen  in  the  transactions  of  the  company  m 
the  course  of  the  preceding  half  year."    It  is  furthur 


FIRST  STEP  TOWARD  REFORM 


111 


provided  that  no  dividends  should  be  declared  except  out 
of  profits,  and  that  dividends  should  never  be  apportioned 
to  stockholders  when  this  would  impair  capital  resources. 
Gradually  statutory  provisions  requiring  the  appoint- 
ment of  auditors  either  by  the  stockholders  of  companies 
at  their  regular  meetings  or  by  the  board  of  trade  were 
extended  to  include  public  gas  works,  public  water  works, 
commercial  banking  campanies,  savings  banks,  uni- 
versity and  college  estates,  judicial  trustees,  county 
officers,  etc.  In  the  movement  toward  poHtical  reform 
a  local  government  board  was  finally  created  (1871), 
which  would  force  upon  all  county  councils,  municipal 
corporations,  and  town  councils  (except  the 

tion*to^mu^^c-    ^^^^^  ^^*^^^)  ^^^^^^  ^^  accounts  and  reports 
ipaiities  to  the  government  of  financial  operation, 

as  well  as  of  financial  condition  of  local 
governing  bodies.  The  same  spirit  of  reform  and  the 
same  necessity  for  providing  a  system  which  would  fur- 
nish the  exact  knowledge  of  details  in  summaries  of 
resources  as  a  means  of  aiding  administrative  direction 
and  control,  mduced  the  large  municipalities  to  employ 
professional  accountants  to  install  improved  systems  of 
financial  records  and  to  audit  their  accounts  periodically. 
Theretofore  the  accounts  had  been  Httle  more  than 
cash-book  entries  of  treasury  statements.  Reform  move- 
ments had  been  directed  toward  holding  the  officers  of  the 
government  to  strict  account  in  the  handling  of  public 
funds  —  in  other  words,  the  books  of  municipalities  and 
local  governing  boards  had  been  based  entirely  on  prin- 
T.   ..  .,        .    ciples  of  official  fidehty,  without  any  attempt 

Limitations  of,-  ■,      ^        i.-  ,       ,.  ^ 

cash  accounts     "^^^8  °^^^  ^^  obtam  results  bearmg  on 

questions  of  administrative  economy.    As 

before  observed,  private  business  of  very  much  smaller 

proportions  had  been  forced  over  to   the  double-entry 


I 


112 


FIRST  STEP  TOWARD  REFORM 


system  as  a  means  of  self-protection.  With  the  public 
corporation,  however,  the  rule  of  survival  did  not  apply, 
as  the  government  could  not  be  allowed  to  die  whatever 
might  be  the  cost  of  carrying  it  on.  Better  municipal 
accounting  came  as  a  result  of  popular  demand  for 
administrative  reforms  which  would  give  the  desired  ser- 
vice at  a  lower  cost.  When  taxation  became  oppressive 
and  it  was  found  that  public  officials  could  not  give  an 
accoimt  of  the  cost  of  administration,  when  functions  of 
municipal  government  became  multiplied  and  municipal 
activities  had  grown  too  complex  to  allow  of  an  intelli- 
gent grasp  of  detail  by  those  in  control,  the  futihty  of  the 
cash-book  system  became  apparent. 

From  the  best  records  that  might  be  made,  and  from 
the  best  summaries  deducible  from  records  of  the  flow 
of  cash,  no  notion  might  be  had  of  the  real  problems  of 
administration  so  far  as  economy  and  efficiency  were 
concerned.  What  the  officer  would  know,  and  what  the 
taxpayer  was  primarily  interested  in  as  a  matter  of  strict 
Application  of  economy,  was  the  current  cost  of  govem- 
methods  for  Ob-  ment  and  the  current  revenue  provisions 
taining  better  made  to  meet  this  cost.  As  a  means  of 
knowing  present  financial  condition  it  was 
also  necessary  to  have  a  complete  accounting  for  the  vari- 
ous properties  belonging  to  the  city  (or  assets),  and  a 
complete  statement  of  municipal  obHgations.  None  of 
these  results  could  be  obtained  from  a  current  record 
of  receipts  and  disbursements.  The  city,  following  the 
Imperial  Government,  had  been  used  to  a  system  of  partial 
single-entry  account  only,  and  the  larger  problems  which 
confronted  the  administration  demanded  not  only  a 
complete  system  of  financial  record  and  account,  but  also 
one  which  would  show  operative  results  in  terms  of  economy 
as  well  as  transactions  of  its  fiduciaries  pertaining  to  assets 


FIRST  STEP  TOWARD  REFORM 


113 


and  liabilities  —  i.e.,  a  complete  double-entry  system  of 
accounts. 

THE  LATENESS  OF  ACCOUNTING  DEVELOPMENT  IN  AMERICA 

In  America  less  progress  has  been  made.  Here  account- 
ing ideals  remained  undeveloped  long  after  they  had 
arisen  to  a  basis  of  scientific  classification  abroad.  Here 
also  financial  reports  were  retained  in  primitive  confu- 
sion long  after  accountancy  had  become  well  established 
as  a  profession  in  England  and  Scotland.  This  was 
largely  due  to  the  lateness  of  our  national  development. 
During  the  period  that  accountancy  was  being  erected 
to  the  plane  of  a  profession  in  Great  Britain,  commerce 
Our  •  til  ^^^  industry  in  America  was  fast  beginning 
turai  condition  ^^  ^^^^  ^^^  ^^^  ^^^  ^  method  which  would 
insure  integrity  of  summaries  of  financial 
result  and  which  would  lay  a  sure  foundation  for  ad- 
ministration of  private  affairs.  As  before  observed,  until 
the  middle  of  the  nineteenth  century  America  was  pri- 
marily an  agricultural  community,  and  the  farmer  needed 
no  account  other  than  a  simple  statement  of  receipts  and 
payments  together  with  a  memorandum  of  credit  obliga- 
tion. 

Before  1830  the  bank  was  the  only  enterprise  of  large 
capital  and  its  transactions  were  treated  as  cash.  To 
show  the  gradual  evolution  of  the  population  from  rural 
to  urban  employment,  the  census  returns  may  be  adverted 
to.  In  1820  the  city  population  of  the  United  States  was 
only  4.93  per  cent  of  the  whole,  and  there  were  only 

Recent         h   ^^^^^^^^  ^^^^^^  having  a  population  of  over 
Of  cities  ^^g^t  thousand.    The  Census  of  1850  shows 

an  urban  population  of  only  12.49  P^r  cent. 
At  this  time  the  American  transportation  company  had 
become  the  only  concern  whose  volume  of  business  and 
9 


U' 


\\ 


114 


FIRST  STEP  TOWARD  REFORM 


breadth  of  organization  demanded  modern  methods,  or  a 
complete  double-entry  system  of  accounts;  after  the  Civil 
War,  industrial  and  commercial  enterprise  came  to  take 
so  important  a  place  in  our  national  life  that  the  current 
of  population  set  more  strongly  to  the  city  —  a  process 
of  centralization  was  begun  similar  to  that  felt  by  Great 
Britain  nearly  a  century  before;  m  1890  about  one-half 
of  our  population  was  found  by  the  census  takers  m 
the  large  cities;  and  in  1900,  in  the  most  highly  industrial 
portion  (viz.:  the  North  Atlantic  States),  only  31.8  per 
cent  of  the  population  remained  in  rural  employment. 

The  sudden  development  of  cities  here,  the  hopeless 
chaos  in  mimicipal  administration,  the  known  mal-prac- 
tices  on  the  part  of  some  of  our  public  officers,  and  the 
Chaos  and  abortive  attempts  by  honest  and  conscien- 
maUdministra-  tious  officials  to  locate  responsibiUty  as 
tion  the  result    ^eU  as  to  protect  themselves  against  the 

01  Ignorance  .   .  -  .  ,  .  *=* 

suspicion  of  corruption  which  the  public 
had  come  to  entertain  toward  all  those  connected  with 
local  government,  has,  within  the  last  two  decades,  raised 
up  a  universal  demand  for  municipal  reform,  which  has 
brought  the  combmed  intelligence  of  honest  citizenship 
to  bear  on  the  solution  of  the  problem. 

Advance  steps  first  taken  were  in  the  nature  of  con- 
stitutional and  legal  reforms.  By  this  method  it  was 
hoped  to  so  hedge  the  officers  of  government  round  about 
with  restrictions,  checks,  and  balances  as  to  make  it 
most  difficult  for  them  to  go  wrong.  Such 
was  the  first  reaction  against  official  infi- 
delity. In  the  United  States,  as  in  England 
and  in  Continental  Europe,  attention  was  first  called  to 
attacks  on  the  public  treasury  and  to  the  subversion  of 
public  funds  to  private  use.  To  protect  the  citizen  tax- 
payer against  misappropriation  of  funds  contributed,  the 


Legal  steps 
taken 


FIRST  STEP  TOWARD  REFORM 


115 


first  movement  toward  constitutional  and  legal  reform 
was  the  creation  and  the  election  of  an  independent 
treasury  official;  and  the  first  method  introduced  to  detect 
fiscal  abuses  was  the  installation  of  a  complete  system 
of  record  of  treasury  transactions  and  the  publication 
of  detailed  treasury  reports.    Legal  check 

halluces"*  ^^^^^  ^^S^^  check  has  been  added  to  little 
or  no  avail.  The  changes  made  in  the 
constitution  could  not  be  more  than  inhibitive  in  charac- 
ter and  tended  only  to  weaken  official  capacity  and  to 
still  further  confuse  official  intelligence,  while  the  method 
of  accounting  in  vogue  served  only  as  a  protection  against 
fraudulent  inroads  on  the  Treasury. 

THE  NEED  FOR  ACCOUNTS  —  A  FIRST  PREMISE  TO  REFORM 

The  need  for  a  system  of  complete  accounting  in  Ameri- 
can municipalities  as  a  first  premise  to  municipal  reform 
has  in  recent  years  been  enlarged  on  by  many.  This 
view  has  come  from  those  who  have  had  to  grapple  with 
administrative  problems  of  large  cities,  and  the  awaken- 
ing has  not  been  without  result.  Efforts  toward  legal 
reform  are  being  shifted  from  constitutional  and  legal 
restrictions  placed  on  official  conduct  or 
negative  measures,  to  those  which  will 
provide  for  greater  efficiency  and  construc- 
tive activity  —  measures  which  will  secure 
a  better  understanding  of  municipal  ac- 
tivity and  administrative  results.  The  most  fundamental 
of  these  are  directed  toward  a  more  enUghtened  system 
of  official  records  and  reports.  The  city  of  Boston,  for 
example,  under  a  revised  ordinance  of  1898,  empowered 
the  city  auditor,  with  the  approval  of  the  Mayor,  to  desig- 
nate expert  accountants  to  examine  the  books  and  accounts 
periodically.     This  was  to  the  end  of  obtaining  a  critical 


Reed  for  ac- 
counts a  need 
for  complete 
and  accurate 
information 


(I 


116 


FIRST  STEP  TOWARD  REFORM 


fl 


i'( 


review,  and  resulted  in  a  more  intelligent  report,  but  did 
not  contemplate  the  installation  of  a  new  system  of  con- 
trol. In  1900  the  State  of  Missouri  appointed  a  special 
commission  for  much  the  same  purpose.  A  number  of 
States  have  inaugurated  movements  to  create  a  per- 
manent board  or  officer  of  central  control  over  municipali- 
ties and  local  government  bodies,  with  powers  similar  to 
those  enjoyed  by  the  local  government  board  of  Great 
Britain.  The  State  of  Ohio  furnishes  an  example  in 
point:  It  has  enacted  a  complete  municipal  code  which 
applies  to  the  principal  cities  and  towns  of  the  State, 
giving  them  uniformity  of  administrative  organization, 
in  addition  to  which  the  State  has  organized  under  the 
State  auditor  a  bureau  of  uniform  accounting  with  power 
to  prescribe  forms  and  systems  and  to  compel  their  adop- 
tion by  all  of  the  mimicipahties.  Other  States,  as 
Wyoming,  have  introduced  uniformity  in  accounts  for 
county  and  town  organization. 

Some  of  the  American  cities,  reorganizing  their  helpless 
administrative  condition  with  their  antiquated  and  unin- 
telligible records,  within  the  last  few  years  have  taken  the 
steps  necessary  to  have  installed  systems  of  account  which 
will  give  a  complete  and  accurate  statement  each  month 
of  revenues  and  expenses  as  well  as  assets  and  liabilities, 
and  relate  these  definitely  to  the  annual  budget.  The 
first  to  do  this  was  the  city  of  Chicago;  this  became  eflFect- 
Recent  steps  ^^^  '^  ^9^2.  The  example  of  Chicago  has 
taken  to  instaU    been  followed  by  Houston,  Texas;  Oklahoma 

temS^itco^  ^^^^'  Oklahoma;  MinneapoUs,  Minnesota; 
accoun     RQ^j^ggi^gj.^  j^j^^  York;  East  Orange,  New 

Jersey,  and  a  number  of  other  towns  of  importance. 
Many  are  considering  the  installation  of  a  complete 
system  devised  for  that  purpose.  Generally  speaking, 
however,  American  municipalities  and  local  government 


FIRST  STEP  TOWARD  REFORM 


117 


bodies  still  attempt  to  work  out  their  administrative 
problems  from  the  cash  book,  and  even  in  States  where 
the  law  requires  a  statement  of  "revenue  and  expense," 
attempts  are  made  to  reach  such  result  through  subsidiary 
schedules,  making  the  treasury  statement  of  receipts  and 
disbursements  the  principal  feature  of  account  and  report. 
Such  a  method  never  has  and  never  can  reach  main 
problems  toward  which  municipal  reform  is  directed,  the 
purpose  of  accounts  being  to  furnish  the  information 
necessary  to  intelligent  administration.  To  do  this  the 
accounts  must  be  organized  and  classified  in  such  a  way 
as  to  reflect  administrative  problems.  The  cash  book  or 
treasury  statement  cannot  form  the  basis  for  such  con- 
sideration. 

Few  municipal  accounting  officers  have  yet  risen  to 
the  dignity  of  professional  accountants.  Most  of  them 
are  in  temporary  political  positions  and  have  been  given 
places  as  a  reward  for  partisan  service.  If  we  judge  from 
the  results  of  their  work  the  conclusion  is  inevitable  that 
few  of  them  have  such  a  knowledge  of  the  principles 
General  adhe-  and  methods  necessary  to  a  complete  double- 
rence  to  inferior  entry  municipal  accounting  that  they  appre- 
™®   °  ciate  the  futihty  of  the  cash-book  system. 

Even  in  cities  like  New  York  and  Boston  the  cash-book 
is  still  retained  as  a  central  feature  of  account  and  report 
—  their  published  statements  show  little  else  than  the 
flow  of  cash  as  it  is  exhibited  in  summaries  of  receipts 
and  disbursements.  The  additional  mformation  given 
bears  on  relations  of  fidelity  and  proprietorship;  but  they 
fimiish  little  or  no  information  which  may  serve  as  a 
guide  to  judgment  as  to  economy  or  efiiciency.  The 
assumption  is  still  engaged,  that  the  chief  aim  of  mu- 
nicipal accounts  and  reports  is  to  know  whether  fiscal 
agents  have  gone  wrong.    Neither  the  officers  of  munici- 


118 


FIRST  STEP  TOWARD  REFORM 


palities  in  responsible  positions,  nor  the  taxpayers,  have 
any  means  of  determining  from  such  a  system  current 
expenses  incurred  (annual  cost  of  administration),  nor 
revenue  accrued  (current  provisions  made  for  covering 
such  cost).  There  is  no  intelligent  guide  for  making 
appropriations  —  no  means  of  ascertaining  revenue  sur- 
plus or  revenue  deficit  as  distinct  from  cash  balance  — 
no  logical  basis  for  budgetary  estimates  from  which  a 
rate  of  taxation  may  be  arrived  at. 

OBSTACLES  IN  THE  WAY  OF  THE  INTRODUCTION  OF  BETTER 
SYSTEMS  OF  MUNICIPAL  ACCOUNTS 

The  obstacles  in  the  way  of  the  introduction  of  better 
systems  of  municipal  accounts  are  many.  In  the  first 
place,  a  clear  appreciation  of  the  need  is  not  general  even 
among  the  most  enlightened  citizens,  and  for  that  matter, 

among  poHtical  scientists  themselves.  Many 
sponaibiii^         Still  cling  to  the  more  primitive  method  of 

control  (restricted  f)olitical  power),  rather 
than  that  of  centralized  oflQcial  direction  and  better  equip- 
ment for  intelligent  and  efifective  administration.  The 
underlying  principle  in  a  government  of  divided  execu- 
tive powers  is  to  insure  fidelity  by  pitting  one  officer  or 
department  against  another.  This  method  assumes  that 
the  chief  aim  of  reform  is  to  prevent  fraud  and  autocracy  i 
and  the  method  was  well  adapted  to  the  political  and  social 
conditions  of  a  century  past.  The  problem  of  to-day, 
however,  is  one  of  increased  administrative  efficiency. 
This  cannot  come  from  a  policy  of  negation.  Adminis- 
trative efficiency  must  be  associated  with  responsible  but 
highly  centralized  control,  which  becomes  effective  only 
when  intelligence  in  an  administrative  head  is  reflected 
from  such  a  record  of  corporate  transaction  as  may  lay  the 
foundation  for  the  exercise  of  effective  official  discretion. 


FIRST  STEP  TOWARD  REFORM 


119 


Social  inertia 


Another  obstacle  to  reform  is  found  in  the  very  element 
which  gives  to  democratic  institutions  their  stability,  viz.: 
m  what  we  may  call  institutional  inertia  or  custom. 
What  habit  is  to  the  individual,  custom  is  to  a  society 
living  under  popular  government.  The  individual  having 
first  chosen  to  act  in  a  certain  manner  under  conditions 
present,  the  action  appearing  to  be  most 
advantageous,  he  continues  to  act  in  like 
manner  under  like  conditions.  But  with  each  repetition 
of  the  act  both  mind  and  body  acquire  such  increased 
faciUty  for  acting  in  this  particular  way  that  it  will  re- 
quire a  constantly  greater  effort  to  act  in  any  other  man- 
ner. By  the  laws  of  habit,  conditions  remaining  the  same, 
the  repetition  of  an  act  is  of  constantly  increasing  ad- 
vantage and  the  habit  continues  unchanged.  The  same 
has  been  postulated  of  society  in  its  collective  activities. 
And  it  being  true  of  the  individual,  on  the  principle  that 
what  is  true  of  each  of  the  parts  is  true  of  all,  the  con- 
clusion follows.  In  social  activities,  however  (i.e.,  the 
activities  of  individuals  cooperating  with  each  other),  this 
fact  becomes  much  intensified  for  the  reason  that  it  re- 
quires far  greater  effort  for  a  number  of  men  to  agree  on 
a  new  plan  of  cooperation,  than  for  one  man  to  make  a 
decision  for  himself;  the  collective  habits  or  customs  of 
men  acting  in  cooperation,  therefore,  are  the  more  firmly 
fixed.  And  as  the  individual  will  put  forth  the  effort 
necessary  to  change  his  habits  only  when,  by  change  in 
environment,  the  disadvantage  of  continuing  to  act  in 
the  old  way  is  greater  than  that  of  effecting  a  change  by 
cultivating  new  habits,  so  with  society  —  a  new  custom 
is  acquired  only  when  the  disadvantage  of  the  old  one 
becomes  practically  unbearable. 

A  third,  and  perhaps  one  of  the  most  potent  deterring 
factors,  is  the  cost  of  installation  of  an  adequate  system 


I 


f 


120 


FIRST  STEP  TOWARD  REFORM 


$ 


of  accounts.  A  city  in  its  business  organization  is  much 
like  a  large  industrial  plant.  Around  its  many  differing  but 
Labor  and  time  ^^^  functions  are  organized  its  depart- 
necessary  to  ments.  Each  department  is  necessary  to 
revise  old  the  successful  Operation  of  the  government; 

each  requires  highly  specialized  equipment 
and  a  complete  record  of  departmental  transactions  as  a 
means  of  intelligent  supervision;  but  all  must  be  moulded 
into  a  general  centralized  system  before  the  general 
manager  (or  chief  executive)  may  obtain  a  proper  view 
of  administrative  results  and  execute  official  functions  in 
a  vigorous  and  effective  way.  Operating  under  the  older 
theory  of  division  of  powers,  many  of  the  departments 
in  the  past  have  acted  independently;  and  acting  in  this 
manner  they  have  organized  the  work  and  evolved  systems 
of  records  peculiarly  their  own.  Some  have  kept  nothing 
but  memoranda  of  transactions,  others  have  reduced  the 
memoranda  kept  to  classified  statement  for  their  own 
advice.  Few  of  the  cities,  however,  have  what  may  be 
called  a  system  of  central  accounts,  and  the  departments 
themselves  are  opposed  to  unification. 

In  such  circumstances  the  devising  and  installation  of 
a  system  of  accounts  based  on  the  theory  of  centralized 
control  requires  the  best  professional  service;  and  before 
this  may  be  successfully  undertaken,  some  one  who  is 
able  to  comprehend  the  problems  of  administration  in  all 
its  bearings  —  some  one  who  is  competent  to  exercise 
judgment  with  respect  to  the  technical  aspects  of  admin- 
istration, some  one  independent  of  all  departmental  tra- 
necessity  for  ditions  and  official  influence,  must  make  a 
professional  Complete  Study  of  every  condition  and  de- 
assistance  and    tail  of  Service  which  is  to  be  brought  under 

the  single  executive  head,  as  well  as  of  the 
powers  and  duties  of  allied  governing  bodies.    The  cost 


FIRST  STEP  TOWARD  REFORM 


in 


of  devising  such  a  system  of  effective  control  —  one  which 
will  at  the  same  time  enforce  fidelity  of  service,  make  pos- 
sible the  strictest  economy,  and  give  the  facility  to  depart- 
mental operation  —  is  not  inconsiderable.  But  the  cost 
of  devising  a  new  system  of  account  is  not  the  most  expen- 
sive part  of  the  work.  Before  the  city  may  avail  itself  of 
a  system  devised,  it  must  be  installed  and  supervised. 
That  is,  the  past  records  (such  as  may  have  been  kept) 
must  be  closed,  and  the  financial  results  transposed  into 
the  new  system.  In  so  far  as  the  old  system  has  failed  to 
account  for  properties  and  financial  obligations  these  must 
be  set  up,  after  which  the  ones  devising  and  installing  the 
account  must  train  the  clerical  staff,  employed  by  the  city, 
in  the  use  of  the  new  device  to  make  it  effective.  For 
this  character  of  professional  service,  the  citizens  of  mu- 
nicipalities are  usually  unwilling  to  pay. 

It  is  not  an  uncommon  thing  for  a  private  corporation 
to  pay  large  sums  for  an  examination  and  improvement 
of  a  system  already  in  use  —  and  one  too  far  superior 
to  those  employed  by  municipalities.  This,  by  them,  is 
considered  a  good  business  investment,  one  made  in  the 
interest  of  permanent  economy  and  higher  working  effi- 
ciency. In  any  large  concern,  public  or  private  corpora- 
tion, a  large  part  of  the  general  expense  of  operation  is  in 
the  clerical  service  necessary  to  the  keeping  of  records  of 
The  example  transactions  and  classifying  them  and  bring- 
of  the  private  ing  them  into  summaries  of  administrative 
corporation  result.  A  manufacturing  concern  will  pay 
more  for  an  improved  cost-keeping  system  alone,  than  the 
largest  of  our  mimicipalities  are  willing  to  expend  for  an 
entire  modem  accounting  plant.  This  was  done  that  the 
manager  might  know  how  much  each  item  of  product  has 
cost.  By  means  of  a  system  of  record  that  will  trace  an 
individual  product  or  process  from  place  to  place  and 


122 


FIRST  STEP  TOWARD  REFORM 


record  every  item  of  expense,  the  general  manager  may 
intelligently  ascertain  where  expense  may  be  reduced 
without  impairing  working  efficiency,  may  fix  a  selling 
price,  and  know  how  much  will  be  the  profit  or  loss  at 
the  price  sold.  The  highest  economy  in  municipal  ad- 
ministration can  come  only  when  public  service  is  reduced 
to  a  basis  of  the  unit  of  cost.  A  municipaUty  may  have 
a  business  many  times  larger  than  a  private  concern  and 
be  almost  entirely  devoid  of  books  of  general  account 
which  will  show  administrative  relations,  yet  the  mu- 
nicipal officer,  fearing  popular  disapproval,  is  not  willing 
to  incur  even  a  small  portion  of  the  expense  of  this  private 
concern  for  the  record  equipment,  to  the  use  of  which 
it  has  in  large  measure  owed  its  business  success. 

The  benefits  of  an  improved  system  of  accounts  are 
largely  to  be  found  in  the  future.  Yet  it  is  a  significant 
fact  that  so  far  as  accounting  reforms  have  been  intro- 
duced, the  cities  installing  them  even  at  large  expense 
have  profited  by  them  by  direct  saving  the  first  year  after 
their  installation,  more  than  the  entire  cost.  Another 
fact  quite  as  significant  may  be  adverted  to: 
that  in  each  case  where  complete  systems 
of  account  have  been  installed,  thos(?  who 
have  undertaken  the  professional  work,  seeking  to  meet  the 
conditions  imposed  by  the  unwiUingness  of  citizens  to 
incur  expense,  and  contracting  to  render  the  service  at 
a  fixed  price,  have  done  the  work  at  a  loss;  the  actuid  cost 
of  doing  it  has  exceeded  the  contract  })rice  received.  With 
the  attitude  of  cities  averse  to  making  an  expenditure  neces- 
sary to  equip  themselves  with  more  effective  adminis- 
trative machinery,  and  with  the  experience  accountants 
already  had  in  the  devising,  installation,  and  supervision  of 
new  systems,  there  seems  litde  hope  that  any  very  radical 
reforms  will  come  before  citizens  are  forced  out  of  cus- 


The  benefits  to 
be  derived 


FIRST  STEP  TOWARD  REFORM 


123 


tomary  habits  of  thought  and  a  change  of  attitude  has 
come  about  which  will  recognize  in  municipal  business 
the  same  conditions  for  precedent  to  administrative 
success  as  are  commonly  accepted  to  be  necessary  in 
private  corporate  affairs. 


i 


I 


CHAPTER  IX 
Municipal  Credit  and  Accounting  Reform* 

The  vice-president  of  the  City  National  Bank  is  among 
the  latest  to  call  attention  to  the  decUning  credit  of  the 
city  of  New  York.  The  mcrease  in  the  bonded  debt  of  the 
city  from  $225,000,000  to  $600,000,000  in  seven  years 
he  does  not  view  with  alarm,  predicting  a  revival  of  con- 
fidence as  mvestors  come  to  know  more  about  the  true 
situation.  What  is  by  Mr.  Vanderlip  regarded  as  a  sub- 
ject for  chief  concern  is  the  present  condition  of  the  city's 
records. 

"Here  is  this  great  metropolis,  with  its  mcome  well 
exceeding  $100,000,000  annually,  undertaking  vast  public 
works,  issuing  millions  upon  millions  of  obligations,  and 
presenting  a  system  of  municipal  accounts  that  have,  even 
with  the  improvements  already  inaugurated,  been  brought 
to  a  point  not  much  short  of  chaotic." 
An  arraign-       "  To-day  there  is  no  true  balance  sheet." 

rneSodL^"^*"*  ""^^^  so-called  balance  sheet  contains  mean- 
ingless credits  that  have  been  carried  from 
year  to  year  since  their  disgraceful  birth  in  the  corruption 
of  the  Tweed  Ring." 

"In  none  of  the  reports  of  the  Controller  is  it  possible 
to  obtain  in  succinct  form  an  intelhgent  view  of  the  city's 
true  financial  position." 

Thus  are  the  city's  records  and  reports  characterized 
in  his  address  before  the  Savings  Bank  Officers'  Asso- 

» Published  in  the  Journal  of  Accountancy,  New  York,  June,  1906. 

124 


THE  BASIS  OF  MUNICIPAL  CREDIT 


125 


The  basis  of 
credit 

tributions. 


ciation.  Not  infrequently  have  such  utterances  come  in 
the  past,  though  usually  from  a  less  authoritative  source. 
This  is  the  voice  of  a  representative  of  one  of  the  largest 
dealers  in  the  city's  credit,  laying  down  the  conditions  for 
future  investment  judgment. 

The  investor  in  long-time  obligations  of  the  city  — 
twenty-year  or  fifty-year  bonds  —  must  look  to  the  pro- 
spectively remote  abiUty  of  the  municipality  to  meet  its 
outstanding  credit.  Currently  it  must  pay  expenses  of 
operation  —  for  the  government  must  be  maintained  at 
whatever  cost  or  sacrifice  of  other  interests; 
currently  it  must  meet  its  interest  payments; 
currently  it  must  make  its  sinking  fund  con- 
But  if  in  any  of  these  obligations  it  shall 
fail  for  lack  of  ability  to  procure  adequate  revenues,  the 
sinking  funds  will  be  first  to  suffer;  i.e.,  the  security  for  the 
payment  of  the  principal  of  the  city's  debt  will  be  the  first 
to  be  impaired.  This  is  the  reason  for  the  bond  buyer's 
concern  at  the  rapidly  rising  debt  —  this  increasing  need 
for  current  revenue  for  sinking  fund  purposes,  with  a  limit 
fixed  on  taxation. 

This  long-time  creditor  of  the  city  is  interested  in  know- 
ing not  only  what  is  the  total  amount  and  what  are  the 
different  classes  of  municipal  liabilities,  but  also  what 
current  assets  and  capital  resources  are  held  by  the  city. 
He  is  interested  in  a  true  statement  of  current  assets,  as  a 
means  of  knowing  whether  the  corporation 
will  be  able  to  pay  expenses,  and  have  enough 
of  current  revenue  left  to  pay  interest  and 
meet  sinking  fund  requirements.  He  is 
interested  in  a  true  statement  of  the  per- 
manent improvements  and  equipment,  that  he  may  know 
what  use  the  city  has  made  of  funds  borrowed,  and 
how  its  present  estate  will  affect  the  future  revenues  and 


Information 
necessary  to 
exercising  in- 
vestment judg- 
ment 


n 


.{■ 


126         THE  BASIS  OF  MUNICIPAL  CREDIT 

expenses.    But  further  than  this,  he  is  interested  in  a  true 
asset  accounting  in  order  that  he  may  know  whether 
proper  and  adequate  provision  is  being  made  for  main- 
tenance and  depreciation  of  properties  that  should  be 
currently  cared  for.     Is  the  city  borrowing  money  on 
long-time  bonds  to  meet  present  expenses  ?  The  classified 
current  report  and  balance-sheet  statement  should  show 
this.     Are  long-time  bonds  being  issued  to  buy  brooms 
for  street-cleaning?  Are  fifty-year  bonds  bemg  issued  for 
the  repair  and  repavement  of  streets,  when  the  life  of 
these  repairs  or  repavements  will  not  be  more  than  a 
fourth  or  a  fifth  of  the  period  which  the  bonds  have  to 
run  ?  Such  a  condition  should  be  shown  by  a  proper  asset 
and  liability  and  expense  accounting.    The  fact  that  the 
current   revenue   provisions   are   inadequate   to   provide 
for  expenses  by   the   amount  of   bonds  so   improperly 
appHed  to  the  purchase  of  supplies  and  to  current  main- 
tenance charges,  should  also  appear  from  adequate  re- 
serves set  up  to  meet  such  expenses.     Unless  the  levy  be 
adequate  to  meet  current  charges  including  aU  proper 
expense  and  depreciation  reserves,  the  income  and  ex- 
pense accounts  would  show  a  revenue  deficiency.    This 
is  some  of  the  information  that  will  be  required  by  in- 
vestors before  the  city  of  New  York  wiU  be  able  to  sell 
bonds  at  their  fuU  worth,  i.e.,  without  the  price  being 
scaled  on  account  of  the  wide  margin  of  risk  that  lies  in 
uncertainty  as  to  those  corporate  facts  and  conditions 
which  should  be  revealed  by  a  proper  system  of  accounts. 
The  bond  buyer,  however,  is  not  the  only  one  to  lay 

The  Citizen's  ^^^^^  ^^  ^^^^  ^^^^  information  concerning 
right  to  know  t^^  city's  affairs.  The  demand  of  the  citizen 
was  recently  expressed  editorially  in  one  of 
our  leading  daiHes  as  foUows:  **  There  ought  to  be  availa- 
ble for  use  in  each  fall  election  a  report  on  the  city'$ 


THE  BASIS  OF  MUNICIPAL  CREDIT         127 


business  resembling  those  presented  to  stockholders  of 
leading  corporations.''  This  demand  includes  all  the  in- 
formation required  by  the  creditor,  but  it  goes  further; 
the  citizen  would  have  reported  such  additional  data  as 
will  enable  him  to  judge  as  to  the  economy  with  which 
public  moneys  have  been  expended,  and  as  to  the  efl5ciency 
of  public  service  rendered.  The  taxpayer  would  not  only 
know  what  resources  the  city  has  to  represent  bonds  out- 
standing, but  would  also  know  what  resources  are  in 
hand  to  represent  bonds  paid  from  sinking  funds.  These 
funds  are  the  capital  contributions  of  municipal  tax- 
payers. What  properties  has  the  city  to  account  for 
them;  or  if  not  properties,  then  in  how  far  have  the  cur- 
rent expenditures  been  reduced  by  allowing  properties 
acquired  to  become  impaired  or  by  suffering  them  to 
depreciate  ?  Has  there  been  a  reduction  in  taxation  equal 
to  the  depreciation,  or  have  reserves  been  created  for 
replacement  ?  Has  the  municipal  estate  been  administered 
in  such  manner  as  will  reflect  credit  upon  the  ofl&cer  and 
will  prove  economical  to  the  taxpayer? 

Mr.  Vanderlip  is  sanguine  not  only  with  respect  to  the 
future  of  the  city's  credit,  but  also  of  the  immediate  pros- 
pect of  accounting  reform.  In  the  present  comptroller 
he  sees  "a  man  who  recognizes  with  remarkable  clear- 
ness the  exact  situation  surrounding  the  city's  credit;  one 
who  has  the  force  and  energy  that  gives  every  promise 
that  great  improvement  will  be  wrought."  But  lest 
through  some  misapprehension  as  to  the 
reform**^****"  **  task  which  the  comptroller  has  before 
him  and  the  unstinted  cooperation  neces- 
sary to  the  accomplishment  of  this  much  desired  end, 
something  may  be  said  of  the  office  which  he  took  in 
January.  Speaking  of  conditions  of  the  records  in  the 
ofl&ce  of  central  control  not  long  since,  a  man  of  national 


I  'I 


128 


THE  BASIS  OF  MUNICIPAL  CREDIT 


I 


reputation  cognizant  of  the  facts  said,  "There  are  on  the 
city's  books  several  hundred  accounts  which  the  account- 
ants of  the  municipahty  themselves  do  not  know  whether 
they  represent  assets  or  liabilities."  This  may  seem 
somewhat  startling,  but  not  less  so  than  a  recent  expres- 
sion of  one  old  in  the  city's  service  who  vouched  for  the 
statement  that  "there  were  between  one  and  two  hun- 
dred accounts  on  the  general  ledger  alone,  representing 
millions  of  dollars,  concerning  which  those  in  the  comp- 
troller's office  know  practically  nothing."  These  accounts 
are  balances  inherited  from  pre-consolidation  times,  and 
have  never  been  analyzed. 

That  those  who  are  at  present  in  the  comptroller's 
office  are  not  responsible  for  the  conditions  will  be  under- 
stood when  it  is  known  that  on  the  occasion  of  one  of 
the  largest  boroughs  being  brought  under  the  present 
charter,  several  millions  of  dollars  were  turned  over  to 
the  chamberlain  by  the  borough  treasurer,  and  several 
wagon-loads  of  books  were  dumped  upon  the  comp- 
troller; these  books  were  not  in  balance  and  the  accoun- 
tants for  the  city  have  not  to  this  time  been  able  to 
reconcile  the  cash  received  with  the  records. 

Responsibility      rrn  '^   j  •  ^  ^'  t^      i 

of  the  past  ^'^^  ^^^  ^^^^^  ^^  ^^^  ^^  exception.     Books, 

files,  and  documents  have  been  piled  in 
heaps  into  the  offices  occupied  by  the  finance  depart- 
ment of  the  city  by  the  various  borough  officers  after 
consolidation;  the  records  have  been  left  in  most  con- 
fused condition;  the  filing  space  is  inadequate;  negligence 
is  displayed  by  the  city  in  permitting  its  most  valuable 
records  to  be  crowded  up  in  unused  comers,  or  at  best 
packed  away  in  sheet-iron  shams  for  safes,  some  of  which 
were  found  to  have  wooden  backs.  To  walk  through 
this  chaos  would  leave  no  wonder  in  the  mind  of  any 
unbiased  observer  that  the  city  to-day  is  unable  to  pub- 


THE  BASIS  OF  MUNICIPAL  CREDIT         129 

• 
lish  a  balance  sheet  or  for  that  matter  even  to  tell  within 
several  millions  of  dollars  the  amount  of  assessments  and 
arrears  it  has  on  its  books.  In  view  of  such  a  condition 
we  need  not  marvel  so  much  that  some  of  the  books  repre- 
senting revenue  assets  have  not  been  balanced  since  1898, 
as  that  the  records  of  cash  received  and  cash  disbursed 
by  the  general  officers  of  the  city  since  consolidation  have 
been  kept  clean.  During  the  last  eight  years  there  has 
been  a  complete  balancing  record  maintained  with  appro- 
priation accounts,  bonds,  trust  funds,  and  with  cash 
receipts  and  cash  disbursements. 

Much  has  also  been  done  to  untangle  the  maze  of  sub- 
sidiary records  and  to  analyze  the  balances  inherited  from 
the  old  books.  Yet  this  work  is  scarcely  begun.  It 
will  require  years  before  official  knowledge  may  be  gained 
of  all  the  subsidiary  records.  And  in  the  nature  of  things 
the  cost  to  the  city  will  be  great.  This,  however,  should 
be  done  and  the  comptroller  should  be  given  the  means 
of  unraveling  this  financial  mystery. 

But  with  a  mastery  obtained  over  existing  records  the 
city  will  know  only  what  it  has  inherited;  it  will  not  be 
put  in  position  to  liquidate  and  realize  on  this  inheritance, 
and  to  state  its  financial  condition  as  reflected  from  the 
past.  The  comptroller  will  still  have  before  him  the 
task  of  devising  and  installing  a  new  svs- 

The  present  4.  c  ^  r  r  ,.-.  . 

opportunity  t^°^  o^  accountmg  or  of  so  far  modifymg 
the  old  one  that  a  balance  sheet  may  be 
currently  taken  off,  and  a  revenue  and  expense  statement 
may  be  currently  and  economically  made.  Unless  pro- 
vision be  made  for  obtaining  these  data  regularly  and 
promptly  from  the  current  closings  of  the  books,  and  a 
system  of  asset  and  liability  and  income  and  expense 
accounts  be  installed  which  will  currently  answer  the 
demands  of  creditors  and  give  to  officer  and  citizen  such 
10 


130 


THE  BASIS  OF  MUNICIPAL  CREDIT 


Pre-consolida- 
tion  records 


information  as  to  enable  them  to  think  intelligently  about 
the  business  of  the  city,  the  municipality  will  still  be  under 
the  same  disadvantage  as  is  at  present  the  subject  of  con- 
tinued comment. 

In  the  boroughs,  prior  to  consolidation,  and  in  the  city 
of  greater  New  York  since,  the  accounts  have  not  been 
such  as  to  lend  themselves  to  the  purposes  of  creditor 
judgment  nor  to  the  purposes  of  those  interested  in  obtain- 
ing a  view  of  administrative  results.  Whatever  may  be 
the  multiplication  or  complication  of  records 
of  cash  received  and  cash  disbursed,  when 
kept  with  appropriations  (the  present  sys- 
tem), there  can  be  only  a  statistical  approximation  as  to 
assets  and  liabihties,  revenues  and  expenses,  and  such 
data  as  are  kept  for  the  purposes  of  such  reports  will  not 
be  under  the  same  control.  Nor  will  there  be  the  same 
necessity  for  keeping  them  up  to  date,  for  promj)t  report- 
ing, as  if  these  were  made  subjects  of  general  controlling 
account  —  accounts  which  must  be  closed  and  correctly 
stated  before  a  trial  balance  may  be  drawn  off. 

Coming  down  from  prior  practice  and  from  depart- 
mental custom,  there  are  at  the  present  time  instances 
of  duplication,  tripHcation,  and  even  quadruplication 
of  accounts  representing  the  same  transactions,  in  each 
case  closing  with  the  same  appropriations  and  funds, 
but  in  no  case  reflecting  financial  condition  or  admin- 
istrative economy.  Much  of  this  energy  is 
misdirected.  One  of  the  tasks  of  the  comp- 
troller is  to  properly  utilize  the  staff  which  is  at  the 
present  on  the  pay-rolls  of  the  city.  Generally  speak- 
ing, books  are  kept  in  departments  from  which  any  infor- 
mation may  be  obtained,  but,  usually,  this  is  not  made 
available,  either  to  the  administration  or  to  the  public 
except  spasmodically,  and  in  fragmentary  form  as  statis- 


Lack  of  system 


111 


THE  BASIS  OF  MUNICIPAL  CREDIT         131 

tically  gathered  in  special  reports.  The  only  information 
that  is  regularly  and  currently  closed  into  controlling 
accounts  pertains  to  funds  and  appropriations.  The  bal- 
ance unexpended  of  appropriations  may  be  known  within 
a  few  days  after  each  closing  date,  but  the  city  cannot 
tell  vv^hat  amount  of  obligations  are  outstanding  against 
appropriations.  Moreover  when  the  head  of  a  depart- 
ment, or  mayor  as  chief  executive,  desires  information  m 
matters  pertaining  to  economy  of  operation  or  depart- 
mental cost  compared  with  service  performed,  there  must 
be  the  expense  and  delay  of  special  statistical  investigation 
and  reclassification  of  data  on  collateral  departmental 
records  and  files. 

In  one  department  three  records  are  kept  in  which 
expenditures,  as  summarized  from  invoices,  are  distributed 
against  appropriations;  in  another  department  two  sets 
of  records  are  similarly  kept.    At  the  same  time  the  same 
data  is  brought    together   in    the    finance   department. 
Multiplicity        ^^^^  information  can  be  of  little  use  to  the 
of  processes       department  since  it  has  no  bills  to  pay. 
There  is  relatively  small  need  for  the  de- 
partment keeping  records  with  city  creditors.     It  being 
the  duty  of  the  comptroller  to  report  to  the  departments 
each  month  the  amount  of  appropriations  unexpended, 
there  would  seem  to  be  small  need  for  a  duplication  of 
similar  accounts  in  the  departments.    It  would   seem 
imperative  that  accounts  should  be  kept  which  would 
show  the  cost  of  operating  the  several  functions  for  which 
the  head  of  the  department  is  held  responsible.     But 
this  is  not  done.    In  the  street-cleaning  department,  the 
costs  of  operating  the  incinerating  plant,  the  tug-boats, 
and  scows  are  not  made  the  subject  of  controlling  account; 
in  the  department  of  Bellevue  and  allied  hospitals,  the 
general  accounts  do  not  show  the  cost  of  operating  the 


132 


THE  BASIS  OF  MUNICIPAL  CREDIT 


kitchen,  the  cost  of  the  laundry,  the  cost  of  housekeeping, 
or  the  cost  of  the  several  wards  for  each  of  the  several 
hospitals  operated  by  the  board  of  trustees;  the  general 
accounts  are  designed  to  show  what  is  the  balance  of  each 
fund  and  appropriation  unexpended,  information  which 
the  charter  requires  the  comptroller  to  furnish  each 
month. 

The  present  accounting  system  presumes  that  the  ad- 
ministration is  not  interested  in  economy  and  efficiency, 
but  only  in  knowing  whether  it  is  keeping  within  appro- 
priations authorized  —  a  character  of  information  which 
both  the  comptroller  and  chamberlain  are  required  to 
keep  at  the  central  oflSce  as  a  basis  for  audit  and  disburse- 
ment. But  as  a  guide  to  the  executive  responsible  for 
The  complete-  the  economical  and  efficient  management 
ness  of  opera-  of  the  city  afifairs,  and  as  a  guide  to  citizen 
tive  data  ^^^   creditor,  such  departmental   accounts 

can  have  but  littie  value.  If  the  head  of  the  department 
of  docks  and  ferries  is  asked  to  make  a  statement  of  the 
cost  of  carrying  a  passenger  or  a  ton  of  freight  to  Staten 
Island,  not  even  a  statistical  approximate  may  be  gained 
till  the  data  of  the  department  has  been  summarized,  the 
expenses  of  ferry  administration,  of  operation,  of  main- 
tenance and  repairs,  etc.,  have  been  brought  together 
and  lined  up  with  the  amount  of  business  done,  instead 
of  being  currently  and  regularly  laid  before  the  commis- 
sioner, the  mayor,  and  taxpayer. 

The  man  who  takes  up  the  task  of  devising  and  installing 
a  system  of  accounts  which  within  each  department  will 
give  administrative  results  and  which  in  the  generd  office 
will  summarize  these  as  well  as  record  trans- 
actions of  cash  and  show  approj)riation 
balances  unexpended  —  which  will  do  this 
without  unnecessary  duplication  or  complexity  of  records 


Heed  for  cen- 
tral control 


THE  BASIS  OF  MUNICIPAL  CREDIT         133 


—-  must  have  in  mind  the  character  of  the  administrative 
divisions  known  as  departments.  Leaving  out  of  account 
the  trust  and  corporate  records  which  would  be  kept 
by  such  departments  as  are  separately  incorporated, 
such  as  the  board  of  education,  and  taking  cognizance 
only  of  departmental  activities  as  a  division  of  the  great 
public  corporation,  the  department  has  no  assets  and  no 
liabilities,  it  has  no  cash,  except  such  petty  cash  as  may 
be  collected  or  disbursed,  it  has  no  bonds  outstanding, 
no  interest  to  meet,  no  bills  to  pay.  The  departmental 
accounts  are  purely  subsidiary,  and  as  subsidiary  accounts 
their  chief  value  is  to  show  administrative  expense  rela- 
tions. As  to  the  disbursements  of  the  city  against  appro- 
priations, the  original  vouchers  and  supporting  invoices 
are  returned  to  and  become  a  part  of  the  records  of  the 
comptroller's  office. 

Since  the  comptroller  is  required  to  furnish  the  depart- 
ments with  a  monthly  statement  of  appropriation  balances, 
the  only  purpose  of  keeping  accounts  in  departments 
would  be  as  a  basis  for  administration.  But  adminis- 
trative cost  is  not  usually  derived  from  invoices.  De- 
partmental expenses  are  generally  of  two  kinds,  viz., 
salaries  and  supplies  used.  Summaries  of  expenses  which 
will  show  economy  and  efficiency  of  management  may  in 
most  cases  be  obtained  from  the  time  books  and  from 
requisitions  on  department  storekeepers.  The  forms  in 
which  these  expenses  may  first  be  obtained  are  in  classified 
Departmental  Summaries  of  pay-rolls,  and  in  classified 
co^fs"^  *^-  reports  of  storekeepers.  In  organizing  a 
system  of  departmental  expenses  for  cor- 
porations, which  will  reduce  the  details  of  accounting  to 
a  minimum,  it  is  common  to  require  such  summaries  and 
reports  to  be  made  in  such  form  that  when  checked  to 
time  books  and  requisitions,  and  property  audited,  they 


'i 


i 


m^ 


134         THE  BASIS  OF  MUNIC  IPAL  CREDIT 

may  be  used  as  journal  vouchers  from  which  tht?  several 
footmgs  may  be  posted  direct  to  the  departmental  expense 
ledger.  The  storekeeper  must  make  his  report  to  clear 
himself  of  stock,  and  the  expenses  of  the  def>artment 
may  be  reported  to  the  comptroller  within  a  few  days 
after  the  first  of  each  month,  there  in  turn  to  be  entered 
into  general  controlling  expense  accounts  of  the  city. 
A  duplicate  of  each  departmental  report,  and  a  copy  of 
the  general  administrative  accounts  on  the  general  books, 
together  with  a  digest  of  administrative  statistics,  might 
also  be  laid  before  the  mayor,  from  which  the  economy 
of  operation  and  the  efficiency  of  those  in  responsible 
position  might  be  judged. 

By  whatever  method  the  comptroller  may  undertake 
to  reform  the  administrative  accounts  and  lay  the  founda- 
tion for  current  reports  and  statistics  necessary  to  intel- 
ligent direction  of  affairs,  it  will  be  necessary  for  him  to 
Essentials  of  map  out  a  System  based  on  a  common 
a  complete  classification  such  as  will  serve  as  a  uniform 
^^  *™  basis  for  departmental  reporting,  and  such 

as  will  lend  itself  to  central  control  in  the  general  office 
of  municipal  account.  In  other  words  it  will  be  necessary 
to  institute  both  a  system  of  asset  and  liability  accounts, 
and  a  general  classification  of  income  and  expense  accounts, 
in  addition  to  the  appropriation  and  fund  accounts  that 
are  at  present  kept  by  the  comptroller. 

To  lay  the  foundation  for  a  uniform  system  of  accounts 
such  as  is  suggested  by  Mr.  Vanderlip  and  by  others,  a 
system  which  will  serve  as  a  basis  for  investment  judg- 
ment as  well  as  for  administrative  and  citizen  control,  and 
to  keep  these  under  accounting  control  while  order  is 
being  brought  out  of  the  chaos  in  the  old  borough  records, 
it  will  be  necessary  for  the  comj)troller  to  engage  some 
temporary  accounting  device,  such  as  for  the  time  being 


THE  BASIS  OF  MUNICIPAL  CREDIT 


135 


to  carry  these  old  balances  into  suspense  until  they  can 
be  analyzed. 

The  work  of  organizing,  of  devising,  of  installing  a 

system  of  administrative  accounts,  and  of  training  a  staff 

used  to  old  ways,  a  staff  which  is  leaning  on  a  vested 

right  to  employment  under  civil  service  rules,  in  many 

cases  subject  to  discharge  only  when  crim- 

Magnitude  of        •      |..  ,.  f  i    .        ,        ,. 

the  task  mality  or  gross  discourtesy  and  insubordi- 

nation or  inability  can  be  proved,  is  an 
undertaking  in  which  many  a  one  who  has  been  success- 
ful in  the  organization  and  execution  of  an  administrative 
system  in  a  business  corporation  might  signally  fail. 

There  are  those,  however,  high  in  authority  who  are 
not  wanting  in  faith.  To  advert  again  to  the  recent  essay 
of  Mr.  Vanderlip:  "One  of  the  greatest  opportunities 
to  do  a  pubHc  service  existing  anywhere  to^ay,  lies  in 
the  position  of  comptroller  of  the  city  of 
of  coSdencT  ^^^  York.  The  demands  of  that  position 
fall  but  little  short,  in  real  importance,  to 
the  position  of  chief  finance  minister  of  the  nation.  In 
the  financial  world  the  position  should  be  regarded  as  a 
close  second  in  dignity  and  recognized  responsibility  to 
the  treasury  portfoHo  itself.  There  is  the  opportunity 
for  the  genius  of  a  Hamilton  in  reforming  the  accounting 
methods  and  presenting  to  the  public  a  true  report  of 
the  business  of  the  city.  It  is  a  fortunate  thing  that  the 
position  of  comptroller  carries  with  it  a  centralized  power 
that  makes  it  possible  quickly  to  obtain  effective  results. 
It  is  fortunate  too  —  and  some  of  you  may  be  surprised 
at  the  statement  —  that  there  are  among  the  old  employees 
of  the  comptroller's  office  a  number  of  men  who,  for 
ability,  loyalty,  and  devotion  to  their  work,  and  for  un- 
selfishness of  motives,  may  well  challenge  comparison 
with  the  staff  of  any  financial  institution  of  the  city." 


1S6 


THE  BASIS  OF  MUNICIPAL  CREDIT 


The  recent  act  placing  in  the  office  of  the  comptroller 
a  statistical  bureau  still  further  adds  to  his  power.  But 
there  are  certain  legal  and  organic  difficulties  to  be  en- 
countered, some  of  which  must  be  rt^moved 
ment  of  p^owers  before  the  best  results  may  be  insured.  And 
above  all  it  is  to  be  held  in  mind  that  the 
comptroller  is  an  officer  independent  of  the  mayor.  The 
chief  executive  as  official  head  of  the  administration, 
responsible  for  the  economy  and  efficiency  with  which 
the  business  of  the  city  is  administered,  must  wait  on  the 
voluntary  cooperation  of  the  head  of  the  department  of 
finance  for  the  installation  and  maintenance  of  depart- 
mental accounts  suited  to  the  administrative  purpose. 

The  opportunity  of  the  comptroller  Ues  in  his  power  and 
in  a  situation  which  ofiFers  full  scope  to  use  it.  Municipal 
Enlarged  re-  accounting  reform  for  the  city  of  New  York 
sponsibUity  of  waits  on  the  broad  cooperative  intelligence, 
comptroUer  ^^^  ^j^^  active  patriotism  of  the  comptroller 
in  the  use  of  that  power  rather  than  a  duty  imj)osed  by 
law.  The  fund  and  appropriation  accounts  now  kept  may 
be  held  by  him,  as  by  his  predecessors,  to  meet  the  full 
measure  of  his  responsibility. 


ii 


CHAPTER  X 

The  Administrative  Significance  of  a  Municipal 

Balance  Sheet* 

The  literature  of  accoimtancy  which  deals  with  the  use 
and  purpose  of  municipal  balance  sheets  invites  greater 
attention  in  two  very  important  particulars:  (i)  Those 
who  have  expressed  themselves  as  favoring  the  installa- 
tion of  accounts  which  lay  the  foundation  for  a  balance 
sheet  have  seemed  not  to  perceive  the  administrative 
importance  of  complete  and  well  classified  statements  of 
assets  and  liabilities;  (2)  others  whose  experience  entitles 
them  to  be  heard,  have  declared  by  most  positive  asser- 
tions that  such  a  form  of  financial  statement  is  meaningless 
—  and  the  conclusions  of  these  essayists,  in  a  large  meas- 
ure, have  gone  unchallenged.  In  other  words  the  Utera- 
ture  in  its  present  condition  leaves  one  with  the  feeling 
that  the  administrative  significance  of  the  balance  sheet 
has  been  but  Httle  perceived.  To  such  an  extent  is  this 
true,  that  the  profession  of  accoimtancy  has  not  attempted 
to  refute  the  conclusion  that  a  municipal  balance  sheet,  in 
the  sense  in  which  the  term  is  generally  understood,  is 
worse  than  useless. 


the  character  of  arguments  used  in  challenging 

its  significance 

The  first  and  principal  argument  of  those  who  chal- 
lenge the  utiHty  of  the  balance  sheet  may  be  resolved  into 
the  following  deductive  formula: 

*  The  Government  Accountant,  September,  1908. 

137 


138 


THE  MUNICIPAL  BALANCE  SHEET 


That  the  balance  sheet  is  an  instrument  designed  to  show 
the  financial  condition  of  individtials  and  companies  en- 
gaged in  gainful  occupation; 

That  the  purpose  of  municipals  corporation  is  not  gain; 

Therefore^  the  balance  sheet  may  not  be  used  to  advan- 
tage in  the  accounts  and  reports  of  municipalities. 

Many  of  the  assertions  and  assumptions  made,  when 
stated  separately  and  supported  by  suggestive  illustration, 
seem  conclusive.  The  truths  and  half-truths  contained 
Defects  in  first  ill  Statements  when  viewed  in  isolation  or 
fonn  of  argu-  arrayed  in  process  of  indirect  reasoning 
™*°*  make  arguments  seem  quite  plausible.    But 

when  brought  to  the  test  of  careful  analysis  each  deductive 
process  is  found  to  be  defective.  Either  the  one  premise 
does  not  bear  a  logical  relation  to  the  other  (and  the  con- 
clusion is,  therefore,  a  non-sequitur)  j  or  the  reasoning 
process  being  logical,  one  or  both  of  the  premises  assumed 
for  the  purposes  of  the  argument  are  found  to  be  untrue. 

Accepting  both  of  the  premises  assumed  in  the  propo- 
sition stated  above  as  being  true,  they  bear  no  logical 
relation  to  each  other.  That  is,  for  the  purpose  of  this 
argument,  the  first  premise  ("  that  the  balance  sheet  is  an 
instrument  used  to  show  the  financial  condition  of  per- 
sons in  gainful  occupation")  is  not  logically  related  to 
the  second  premise  ("that  the  purpose  of  the  municipal 
corporation  is  not  gain").  In  the  first  place,  it  is  not 
assumed  that  the  use  of  a  balance  sheet  is  Umited  to  per- 
sons engaged  in  gainful  occupation.  In  the  second  place, 
it  is  not  even  suggested  that  the  balance  sheet  is  used  as 
an  instrument  for  showing  gain.  If  the  first  of  these 
objections  were  overcome,  then  there  would  be  no  need 
for  further  argument,  as  the  premise  itself  would  state  the 
conclusion.  The  second  objection  is  quite  as  decisive  for 
the  reason  that  the  assumption  if  made  would  not  be  true. 

The  balance  sheet  is  not  used  to  measure  gain;  it  is 


\ii 


THE  MUNICIPAL  BALANCE  SHEET 


139 


designed  to  show  financial  condition  at  a  particular 
moment.  Moreover,  it  may  be  used  by  any  person 
having  assets  or  liabilites  to  exhibit.  The  balance  sheet 
is  in  the  nature  of  an  instantaneous  photograph  of  condi- 
tion; by  balancing  resources  against  Uabilities,  the  amount 
of  the  surplus  or  deficit  at  one  moment  may  be  compared 
with  the  surplus  or  deficit  at  another  moment.  But  no 
information  is  given  as  to  the  reason  for  changes  in  the  sur- 
plus or  deficit.  The  person  or  corporation  which  shows  a 
diminishing  surplus  may  have  had  an  increase  of  profits 
or  vice  versa.  Every  factor  of  gain  and  loss  and  every  fac- 
tor of  distribution  is  left  out  of  the  analysis  presented  by  a 
balance  sheet.  Simply  the  net  results  of  all  forces  com- 
bined is  portrayed.  The  second  premise  in  the  first  logical 
form,  viz.,  "that  the  purpose  of  the  mtmicipal  corporation 
is  not  gain,"  therefore,  carries  no  conclusion  with  respect  to 
the  use  of  an  instrument  which  is  not  used  to  measure  gain. 

A  second  form  of  argument  less  frequentiy  heard,  but 
still  one  to  be  reckoned  with,  is  as  follows: 

That  the  purpose  of  the  balance  sheet  is  to  display  the 
amount  of  resources,  in  statement  form,  as  opposed  to  the 
amount  of  liabilities. 

That  the  municipality  {being  an  entity  made  up  of  all 
the  people  and  the  aggregate  of  all  private  estates  and  com- 
mon properties  within  its  jurisdiction)  as  such  has  no 
resources  and  liabilities. 

Therefore,  a  municipal  corporation  cannot  properly  have 
a  balance  sheet. 

This  is  quite  as  defective  as  the  first  and  less  ingenious. 

Specious  char-    ^^^  ^^^^  ^^  sound,  but  its  second  premise 
acter  of  the        has  no  semblance  of  truth.     Lest  question 
second  form  of  be  raised  with  respect  to  the  fairness  of 
'^^^  this  statement  of   the  case,  the  following 

is  quoted  in  haec  verba  from  a  recent  address  at  Wash- 


■i 


!f 


.r:J' 


H 


140 


THE  MUNICIPAL  BALANCE  SHEET 


ington  by  one  of  the  most  outspoken  disciples  of  the 
school:  * 

"A  city  as  such  has  neither  capital  nor  revenue." 
"The   municipal   corporation   when   considered   as   a 
separate  entity  and  apart  from  the  private  estates  within 
its  territory  is  a  penniless  nonentity." 

"Any  attempt,  therefore,  to  recognize  in  the  general 
statement  of  a  city  the  value  of  common  proj)erties,  is 
seeking  to  express  a  condition  which  does  not  exist  and 
forces  a  construction  that  is  fictitious,  arbitrary,  mean- 
ingless, and  withal  misleading." 

THE  AFFIRMATIVE  SIDE  OF  THE  CASE 

To  say  that  a  city  has  no  resources  and  liabilities  does 
violence  to  every  experience,  every  transaction,  and  every 
legal  principle  associated  with  municipal  Hfe,  municipal 
business,  or  municipal  law.  But  the  fact  that  those  who 
have  inveighed  against  the  making  of  a  municipal  balance 
sheet  have  failed  to  convince,  does  not  raise  even  a  pre- 
sumption in  favor  of  its  use.  The  question  must  be  an- 
swered :  In  what  manner  can  such  a  statement  of  resources 
and  liabilities  contribute  in  giving  an  intelligent  under- 
standing of  the  city's  business? 

The  municipality  has  been  truly  described  as  a  cor- 
poration organized  and  maintained  for  the  purpose  of 
rendering  to  the  people  residing  within  a  definitely  de- 
scribed district,  services  which,  by  reason  of  density  of 
Two  classes  of  population,  are  necessary  to  their  existence 
problems  to  be   and  welfare  —  services  which  could  not  be 

considered  •     n  /^   .       . 

as  economically  or  as  efficiently  rendered 
by  individuals  in  their  private  capacity  as  by  an  incor- 
porated public  institution.    To  perform  these  services 

I  Maclnnes,  Proceedings  of  the  Second  Conference  on  Uniform  Mu- 
nicipal Accounting,  February,  1906,  page  98. 


!( 


THE  MUNICIPAL  BALANCE  SHEET 


141 


economically  and  efficiently,  it  is  necessary  that  the  mu- 
nicipality have  large  funds  provided  and  that  it  shall  own 
and  maintain  extensive  properties  and  equipment.  These 
facts  give  us  two  classes  of  problems  and  responsibilities 
concerning  which  we  should  have  accurate  information, 
viz.: 

1.  Problems  and  responsibilities  covering  service  ren- 
dered or  to  be  rendered,  and 

2.  Problems  and  responsibiUties  concerning  the  funds, 
properties,  and  equipments  owned  or  possessed  by  the 
city  for  rendering  such  service. 

THE  PURPOSE  OF  ACCOUNTS  AND  REPORTS  WHICH  REFLECT 
MUNICIPAL  SERVICE  RENDERED 

^The  accounts  and  reports  of  municipal  services  rendered, 
have  been  fairly  well  estabUshed  along  the  lines  deter- 
mined by  the  character  of  activities  undertaken;  that  is, 
by  process  of  examination  and  analysis  it  has  been  found 
that  there  are  five  general  classes  of  data  necessary  to  an 
understanding  of  municipal  activities,  viz.: 

1.  Those  which  pertain  to  the  corporation  as  such. 

2.  Those  which  have  to  do  with  activities  governmental 
in  their  nature. 

3.  Those  which  relate  to  public  education  and  recrea- 
tion. 

4.  Those  pertaining  to  public  industries  and  invest- 
ments. 

5.  Those  associated  with  public  or  private  trust  rela- 
tions. 

To  be  specific:  In  its  corporate  capacity,  the  city  must 
The  constitu-  provide  for  the  expression  of  popular  opinion 
encies  to  be  through  petition,  election,  initiative,  referen- 
appeai  to  dum,  and  recall.  In  its  governing  capacity 
it  must  provide  for  the  meetings  and  the  promulgation 


I  • 


r 


It'l 


I 


i 


142  THE  MUNICIPAL  BALANCE  SHEET 

of  acts  of  representatives;  must  maintain  courts  and  cen- 
tral executive  offices;  must  provide  for  the  protection  of 
life,  health,  and  property,  and  to  this  end  organize  a 
police  force;  control  the  administration  of  health,  sanita- 
tion, street  cleaning,  and  the  removal  of  garbage;  must 
conduct  hospitals  for  the  sick  and   the  injured;  must 
carry  on  institutions  for  the  insane,  for  the  cure  of  social 
dependents,  for  misdemeanants  and  criminals,  and  regu- 
late the  administration  of  public  charities.    In  its  capacity 
as  agent  for  social  uplifting  and  individual  welfare,  it  may 
provide  for  pubhc  schools,  museums,  art  galleries,  parks, 
gardens,   gymnasiums,  baths,  playgrounds,   public  cele- 
brations, music,  and  exhibitions.     In  the  interest  of  social 
economy,  the  city  may  also  operate  and  maintain  enter- 
prises for  the  supply  of  water,  gas,  electric  lights,  heat  and 
power;  may  conduct  transportation  by  street  railways, 
subways,  boats,  ferries,  and  bridges;  may  give  easements 
through  tunnels  and  conduits,  manage  markets  and  trad- 
ing places;  as  investor,  it  may  rent  lands  and  structures 
and  provide  capital  for  private  undertakings  through  the 
purchase  of  shares  and  the  making  of  the  loans  where 
public  welfare  may  seem  to  demand  such  use  of  the  com- 
munal estate  for  common  ends.     In  its  capacity  as  trustee 
it  may  hold  and  administer  intestate  estates,  become  re- 
sponsible for  the  proper  application  of  funds  and  the 
proper  management  of  properties  bequeathed  to  the  city 
for  specific  use;  it  may  become  liable  for  security  deposits, 
cash  bail,  pension  funds,  and  other  properties  held  in 
fiduciary  capacity,  for  specific  private  or  public  ends. 

For  the  intelligent  direction  of  expenditures  incurred 
in  maintaining  these  several  classes  of  activities  the  same 
information  is  needed  as  if  they  were  administered  by  a 
private  corporation.  The  fact  that  the  municipality  is 
not  conducted  for  gain  makes  no  difiFerence  either  in  form 


THE  MUNICIPAL  BALANCE  SHEET 


14S 


or  classification  of  operative  accounts.  The  purpose  of 
Character  of  expense  accounts,  whether  conducted  by 
intelligence  private  or  public  Corporations,  is  to  give 
needed  information  necessary  to  the  determination 

of  questions  of  economy  and  efficiency.  Assuming  that  a 
particular  enterprise  is  managed  with  greatest  economy 
and  efficiency,  the  deduction  arrived  at  through  sum- 
maries of  gain  and  loss  relate  themselves  to  the  revenue 
side  of  administration.  If  under  such  circumstances  it 
appears  that  the  enterprise  is  operated  at  a  loss,  then  the 
only  conclusions  to  be  drawn  are:  (i)  That  the  prices 
charged  for  the  product  or  service  are  too  low,  or  (2)  That 
such  part  of  the  enterprise  as  is  unprofitable  should  be 
discontinued,  or  (3)  That  there  is  some  reason  in  insti- 
tutional policy  which  determines  that  the  unprofitable 
activities  should  be  continued  even  at  a  loss. 

The  essential  difference  between  public  and  private 
enterprise  lies  not  in  problems  affecting  expenditures,  but 
in  questions  of  price  making  and  distribution.  That 
is  to  say,  the  stockholder  or  member  of  a  private  cor- 
poration expects  his  returns  in  the  form  of  a  margin  of 
price  which  will  yield  money  dividends;  the  citizen  or 
member  of  a  municipal  corporation  expects  his  returns 
in  cheaper  or  better  service  rendered  at  cost. 

THE  NEED  FOR  MUNICIPAL  ACCOUNTS  AND  REPORTS  WHICH 
REFLECT  RESOURCES  AND   LLA.BILITIES 

The  duties  of  administrative  officers,  however,  do  not 
end  with  economical  and  efficient  service.  Uf)on  them 
also  is  the  obligation  of  fidelity  and  exercise  of  judgment 
in  the  care  of  funds  and  properties,  and  in  the  protection 
of  the  institution's  credit.  By  common  law  as  well  as  by 
statutory  enactment,  a  corporation  assumes  the  same  rela- 
tion to  property  and  may  incur  credit  obligations  to  the 


< 


144 


THE  MUNICIPAL  BALANCE  SHEET 


same  extent  as  a  private  person.  The  members  of  a  cor- 
poration (citizens  or  stockholders)  have  no  more  right  to 
trespass  on  the  property  of  the  "  artificial  person"  in  which 
they  are  interested  or  to  interfere  with  its  proprietary 
rights  than  if  they  had  no  interest  whatever  in  it.  The 
proprietorship  of  the  corporation,  however,  is  limited  by 
its  own  legal  incapacity.  In  common  law  it  has  much 
the  same  status  as  a  minor  or  a  married  woman;  it  can- 
not transact  business  except  through  duly  elected  and 
appomted  agents.  By  both  common  and  statutory  law, 
the  ofl5cer  is  made  trustee  of  all  properties  and  funds  be- 
longing to  the  corporation  or  which  it  has  in  its  posses- 
sion. The  officer,  however,  must  act  within  authority, 
and  this  applies  to  all  acts,  including  the  incurring  and 
paying  of  its  debts.  Notwithstanding  this  fact,  few  mu- 
nicipalities have  attempted  to  hold  their  officers  to  strict 
account  as  tnistees;  and  there  are  still  those  who  stoutly 
advocate  that  it  is  needless  to  have  accoimts  or  to  publish 
reports  which  reflect  official  responsibility  as  trustee. 

Let  us  consider  some  of  the  administrative  questions 
which  arise  with  respect  to  mimicipal  proprietorship. 
These  are  of  two  general  classes,  viz.:  (i)  Those  which 
relate  themselves  to  resources  and  liabilities  having  to 
do  with  the  financing  of  current  expense  of  the  corporation, 
and  (2)  Those  which  relate  themselves  to  the  acquisition 
of  permanent  properties  and  equipments  necessary  to 
carry  on  city  functions  with  economy  and  efficiency. 
The  necessity  for  making  this  distinction  lies  in  the  dif- 
ference of  official  responsibility  attached  to  the  various 
classes  of  resources  and  Uabilities.  The  first  class  of 
resources  is  intended  for  current  consimiption.  It  is 
to  be  applied  to  the  cost  of  operation  and  maintenance. 
The  fiduciary  relation  of  the  administrating  officer  is  to 
see  that  the  amounts  are  applied  with  economy,  and 


THE  MUNICIPAL  BALANCE  SHEET 


145 


that  the  balance  unused  is  accounted  for.  The  second 
class  of  resources  and  liabiUties  has  attached  to  it  quite 
different  administrative  conditions.  Funds  raised  for 
the  acquisition  of  properties  and  equipment  are  not  to  be 
consumed ;  they  are  to  be  carefully  guarded  and  preserved 
for  the  purchase  of  lands,  buildings,  machinery,  and  other 
apparatus  intended  for  continuous  or  permanent  use  by 
the  city  in  carrying  on  its  current  operations.  When  so 
expended  the  properties  and  equipments  are  to  be  main- 
tained in  such  condition  that  they  may  not  become  im- 
paired; and  the  cost  of  maintenance  is  to  be  met  out  of 
the  first  class  of  funds  —  i.e.,  set  up  as  an  operating 
expense.  The  second  part  of  the  municipal  estate  stands 
in  the  same  relation  to  the  city  as  capital  to  a  private 
corporation;  and  the  municipal  officer  has  the  same  re- 
sponsibiUty  for  its  care  and  keeping  as  the  officer  of  the 
private  corporation  for  the  protection  of  its  capital. 

ADMINISTRATIVE  QUESTIONS  TO  BE  ANSWERED  WITH  RE- 
SPECT TO  RESOURCES  AND  LIABILITIES  HAVING  TO  DO 
WITH  EXPENSES   OF  OPERATION 

Our  next  inquiry  follows:  What  information  is  neces- 
sary to  the  proper  execution  of  these  two  classes  of  trusts 
and  what  reports  should  be  made  to  the  corporate  mem- 
bership through  the  accounts?  Let  us  ask  ourselves  first, 
what  are  the  administrative  questions  to  be  answered 
with  respect  to  resources  and  liabilities  having  to  do  with 
financing  expenses  of  operation?  The  principal  subjects 
of  inquiry  with  respect  to  these  are : 

1.  The  due  and  demand  Uabihties,  i.e.j  obligations  in- 
curred in  financing  the  expense  of  operation  that  must 
be  immediately  met. 

2.  The  cash  on  hand  to  meet  such  obligations. 

3.  The  obligations  incurred  by  hypothecation  of  revenue 

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THE  MUNICIPAL  BALANCE  SHEET 


i 


and  other  accounts  receivable  to  provide  the  cash  with 
which  to  meet  due  and  demand  UabiHties. 

4.  The  collectible  revenue  and  other  accounts  receiv- 
able which  have  been  hypothecated  to  secure  the  pay- 
ment of  such  short-time  Habilities. 

5.  The  other  obligations  incurred  to  provide  cash  for 
current  expenses,  or  to  meet  due  and  demand  habilities 
not  secured  by  hypothecation  of  revenue  and  other  ac- 
counts receivable. 

6.  The  collectible  revenues  and  other  accounts  receiv- 
able not  hypothecated. 

7.  The  surplus: 

(a)  Of  cash  over  due  and  demand  habilities  (or  vice 
versa). 

(b)  Of  collectible  revenue  and  other  accounts  receivable 
hypothecated  over  current  Uabihties  secured  thereby. 

(c)  Of  collectible  revenue  and  other  accounts  receiv- 
able not  hypothecated  over  current  Habilities  not  secured. 

(d)  The  balance  of  resources  applicable  to  the  pay- 
ment of  Habihties  which  may  be  appropriated  for  future 
expenses. 

8.  The  amount  of  inventories  of  goods  on  hand  and  the 
amount  of  advances  made  which  are  not  available  for  the 
payment  of  habihties,  but  which  may  be  appHed  as  against 
future  expenses. 

9.  The  balance  unexpended  of  appropriations  made  for 
future  expenses  and  for  the  future  purchase  of  suppHes, 
etc. 

10.  The  present  encumbrances  and  contract  Habihties 
incurred  against  such  appropriation  balance  unexpended. 

11.  The  unencumbered  balances  of  appropriations 
available  ^or  the  expense  period  not  yet  elaj^sed. 

AU  of  these  subjects  of  administrative  care  raise  ques- 
tions with  respect  to  the  current  assets  and  current  Ha- 


THE  MUNICIPAL  BALANCE  SHEET  147 

biHties  of  a  municipality.  Each  of  the  classes  of  data 
above  suggested  are  absolutely  necessary  to  an  inteUigent 
administration  of  the  trusts  imposed  on  the  officers  re- 
sponsible for  the  funding  of  current  operations  —  whether 
they  be  executive  officers  empowered  to  borrow  and  pro- 
tect the  city  credit,  or  an  appropriating  and  tax-levying 
body  charged  with  the  duty  of  providing  the  city  with 
adequate  revenues  and  granting  the  necessary  authority 
to  spend  the  same. 

It  is  a  fact  which  reflects  on  the  American  public  and 
on  its  professional  advisers  and  law-making  agents  more 
than  on  the  municipal  officer,  that  such  accounts  as  have 
been  described  are  not  kept  and  such  reports  are  not  made. 
The  individual  officer  who  is  held  as  trustee  for  the  exer- 
cise of  duties  in  these  several  relations  seldom  has  the 
tune  or  opportunity  within  a  single  term  to  work  out  and 
install  the  means  by  which  he  wiU  be  enabled  to  give  such 
an  account  of  his  trust.    It  wiU  be  only  when  the  pubHc 
law  sets  up  such  a  standard  that  we  may  hope  for  account- 
ing   methods    through    which    these   several    classes  of 
information  may  be  accurately  obtained   and  reported. 
To  construct  such  a  law  is  one  of  the  problems  of  primary 
importance  to  charter  revision  commissions  and  to  state 
legislatures.    Having  required,  as  a  matter  of  legal  pre- 
scription, an  accounting  for  current  resources  and  Ha- 
bihties, periodical  statements  may  be  made  which  answer  - 
the  questions  reflecting  official  fidehty  and  which  are  so 
necessary  in  making  an  inteUigent  official  forecast.     The 
same    enactment    should    require    operative    statements 
based  on  accounts  of  expenses  incurred  and  revenues 
accrued  so  that  the  officer  may  be  held  to  his  responsi- 
bihty  for  economy  and  efficiency  of  service  during  his 
administration.     In  other  words,  the  current  surplus  or 
deficit  accounts  on  the  balance  sheet  should  find  complete 


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THE  MUNICIPAL  BALANCE  SHEET 


analysis  in  the  details  of  municipal  operation  accounts, 
and  in  gain  and  loss  accounts. 

QUESTIONS  TO  BE  ANSWERED  WITH  RESPECT  TO  THE  FUNDS 
PROVIDED  FOR  ACQUISITION  OF  PUBLIC  PROPERTIES 
AND  EQUIPMENT 

Quite  as  well  defined  are  the  classes  of  administrative 
questions  to  be  answered  with  respect  to  the  funds  pro- 
vided for  the  acquisition  of  permanent  properties  and 
equipment,  with  respect  to  the  liabilities  incurred  in 
raising  such  funds,  with  respect  to  the  sinking  fund  or 
other  contracts  made  for  the  payment  of  these  obliga- 
tions, with  respect  to  the  investments  of  the  city  and  to 
the  properties  and  equipment  to  be  maintained  for  con- 
tinuous or  permanent  use.  Again  following  th<3  Une  of 
official  responsibihty,  accurate  and  detailed  current  in- 
formation should  at  all  times  be  available  for  answering 
such  questions  as  these: 

1.  What  amount  of  indebtedness,  incurred  for  munici- 
pal capital  and  equipment,  is  still  outstanding? 

2.  What  are  the  contracts  for  maturing  these  obliga- 
tions; what  the  sinking  fund  pro\dsions  made  for  meeting 
them  when  due;  are  these  sinking  fund  contracts  being 
f  ulfiUed  ? 

3.  What  are  the  balances  unexpended  of  funds  obtained 
for  construction  or  investment  purposes;  are  these  balances 
intact  or  have  they  been  diverted  to  other  uses;  what  uncom- 
pleted contracts  or  other  encumbrances  are  there  against 
these  balances;  what  is  the  condition  of  the  property  under 
construction  for  which  these  funds  have  been  provided  ? 

4.  What  has  been  the  cost  of  properties  and  equipment 
provided  fory  purely  governmental  functions;  are  these 
properties  currentiy  maintained,  and  if  not,  how  much 
have  they  been  allowed  to  depreciate  ? 


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THE  MUNICIPAL  BALANCE  SHEET 


149 


5.  What  amount  of  the  properties  and  equipment  for 
purely  governmental  purposes  has  been  obtamed  with 
funds  obtained  by  borrowing  on  municipal  credit;  what 
amount  is  represented  by  appropriations  from  revenue 
either  directly,  through  sinking  fund  instahnents,  or  by 
payment  of  the  debt  incurred  for  these  purposes? 

6.  What  has  been  the  cost  of  properties  and  equipment 
provided  for  education  and  recreation;  are  these  properties 
being  currently  maintained,  and  if  not,  how  much  have 
they  been  allowed  to  depreciate? 

7.  What  amount  of  the  properties  and  equipment  for 
education  and  recreation  has  been  obtained  with  funds 
obtained  by  borrowing  on  municipal  credit;  what  amount 
is  represented  by  appropriations  from  revenue  either 
directly,  through  sinking  fund  instahnents,  or  by  payment 
of  the  debt  incurred  for  this  purpose? 

8.  What  classes  of  municipal  enterprises  are  owned  by 
the  city;  what  has  been  the  cost  of  properties  and  equip- 
ment of  each  class;  is  each  class  of  properties  being 
properly  maintained,  or  if  not,  how  much  has  each  class 
of  properties  and  equipment  been  permitted  to  depreciate  ? 

9.  What  amount  of  each  class  of  these  properties  and 
equipment  has  been  purchased  with  funds  obtained  by 
borrowing  on  municipal  credit;  what  amount  of  each 
class  is  represented  by  appropriations  from  revenues 
either  directly,  through  sinking  fund  instalments,  or  by 
payment  of  the  debt  incurred  for  these  purposes? 

10.  What  investment  has  the  city  made  in  stocks,  bonds, 
real  estate,  or  other  properties  or  rights  not  included  in 
the  other  classes  of  accounts  enumerated;  how  were  these 
investments  obtained;  how  have  they  been  administered? 

When  considering  the  accounts  of  municipal  industries, 
few  accountants  have  had  the  temerity  to  deny  that 
"capital  accounts"  have  a  distinct  administrative  ad- 


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THE  MUNICIPAL  BALANCE  SHEET 


THE  MUNICIPAL  BALANCE  SHEET 


151 


vantage:  (i)  by  keeping  before  the  officer  the  properties 
to  be  maintained;  (2)  by  giving  a  proper  basis  for  the 
actuarial  estimates  of  depreciation  to  be  overcome  through 
the  aggregate  of  provisions  made  for  maintenance;  (3)  by 
providing  through  accurate  cost  accounts  for  the  infor- 
mation necessary  to  the  making  of  an  intelligent  rate  of 
charge  to  the  public  for  services  rendered.  None  of 
these  problems  may  be  properly  dealt  with,  without  an 
adequate  system  of  capital  accounts  maintained  in  con- 
junction with  an  equally  adequate  system  of  operative 
accounts. 

Relatively  few  accountants,  however,  have  i)erceived 
the  administrative  advantage  of  maintaining  accounts 
which  show  what  we  may  call  the  net  present  worth  of 
the  properties  and  equipment  used  for  purposes  of  edu- 
The  analogy  cation  and  recreation,  and  for  purposes  of 
of  private  ac-  purely  governmental  functions.  Pavements 
counting  gj^^  sewers  have  been  frequently  cited  as 

forms  of  improvements  concerning  which  no  capital 
accounts  are  to  be  carried.  While  this  is  to  b(^  admitted 
if  considered  in  relation  to  the  public  debt,  from  an  ad- 
ministrative point  of  view  the  sewer  has  a  present  worth 
which  should  be  represented  in  accounts.  Adminis- 
tratively, the  money  paid  for  paving  a  street  with  asphalt, 
which  will  last  ten  years,  is  to  be  considered  as  belonging 
to  the  same  category  as  money  paid  in  advance  for  the 
insurance  of  a  building  for  ten  years.  In  the  latter  case, 
no  question  is  raised  with  respect  to  both  the  financid 
and  administrative  advantage  of  showing  each  year's 
insurance  charge  separately  as  an  expense  of  that  year 
and  carrying  the  balance  of  the  "advance"  as  "prepaid 
insurance."  And  any  institution  which  carries  such  an 
account  will  show  the  amount  of  "advances"  for  pre- 
paid insurance,  prepaid  rents,  etc.,  on  its  balance  sheet. 


For  the  same  reason  the  actuarial  depreciation  of  the 
pavement  should  be  charged  to  the  current  year's  expense, 
while  the  balance,  or  the  total  cost  of  paving,  less  deprecia- 
tion, should  remain  on  the  books  and  should  appear  in 
The  protection  the  capital  balance  sheet.  The  adminis- 
of  municipal  trative  advantage  of  such  an  account  is 
properties  ^^^  difficult   to   scc.    It   keeps   constantly 

before  the  officer  a  matter  which  leads  to  intelligent  in- 
quiry. What  pavement  does  this  account  in  the  general 
statement  represent?  What  are  the  details  supporting  it? 
What  streets  will  need  repaving  this  year;  what  the  next; 
what  the  next;  etc.?  What  current  provisions  are  being 
made  to  meet  the  depreciation  of  the  streets?  Will  a 
large  number  of  streets  require  repa\ing  within  a  single 
year  ?  If  so,  then  what  year  and  what  provisions  are  being 
made  to  equalize  the  burden  ? 

All  of  the  permanent  properties  and  equipment  of  a 
city  may  be  accounted  for  on  the  same  theory.  If  the 
amoimt  of  the  cost  of  such  improvements  is  considered 
as  the  actuarial  depreciation  of  subsequent  years,  then 
there  is  the  same  reason  for  carrying  the  cost  of  a  school 
building  into  a  balance  sheet  as  there  is  for  carr>'ing 
the  cost  of  prepaid  insurance  or  prepaid  rents.  The 
accoimt  for  permanent  improvements,  however,  would 
appear  in  the  capital  balance  sheet,  instead  of  being 
The  controlling  Considered  a  current  asset  —  a  conclusion 
purpose  of  the     made  necessary  by  reason  of  the  character 

ance  s  ee  ^£  ^j^^  administrative  questions  to  be  an- 
swered through  the  two  classes  of  accounts.  The  con- 
trolling purpose  of  the  current  balance  sheet  is  to  display 
the  several  forms  of  assets  available  for  meeting  current 
liabilities  and  current  expenses.  The  controlling  purpose 
of  the  capital  balance  sheet  is  to  represent  the  capitalized 
cost  of  permanent  improvement  and  equipment  and  the 


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THE  MUNICIPAL  BALANCE  SHEET 


THE  MUNICIPAL  BALANCE  SHEET 


153 


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funds  provided  for  such  use.  Items  affecting  the  debt 
limit  may  be  taken  from  both,  but  should  be  set  up  as 
a  statistical  summary  from  the  accounts,  since  the  debt 
limit  is  purely  arbitrary  and  may  bear  Uttle  or  no  relation 
to  the  administrative  accounts. 

With  relation  to  the  current  charge  to  be  made  for  the 
purpose  of  protecting  the  capital  of  a  city  from  becoming 
impaired,  we  have  the  same  problem  before  us  as  is  pre- 
sented by  any  corporate  enterprise,  viz.,  that  of  providing 
for  the  actuarial  depreciation  of  a  building  which  has 
been  erected,  in  order  that  the  corporation  may  have  either 
a  building  of  similar  kind  and  quaUty,  or  a  fund  sufficient 
to  replace  such  a  building  at  the  end  of  a  given  actuarial 
period.  Having  determined  on  the  amount  of  such  annual 
charge  to  expenses,  this  amount  should  be  set  up  as  a 
"reserve  for  depreciation"  and  the  cost  of  the  repairs 
against  the  reserve.  Each  year  it  should  be  the  aim  of 
the  city  and  of  the  officers  holding  positions  of  trust 
and  responsible  for  the  protection  and  maintenance  of 
its  properties  to  expend  an  amoimt  for  re})airs  which 
will  maintain  its  properties  and,  as  a  whole,  protect 
them  from  depreciation.  In  case  such  repairs  are  not 
made,  then  the  account  should  show  by  what  amount  the 
city  has  permitted  its  properties  to  depreciate  and  to 
what  extent  it  has  failed  to  charge  the  current  year 
with  the  amount  which  is  necessary  to  equitably  dis- 
tribute expenses  of  mamtenance  over  a  period  of  years. 
Without  such  provision,  either  the  city  is  suffering  a  loss 
without  knowmg  it,  is  divertmg  its  funds  to  uses  to  which 
they  should  not  be  put,  or  is  piling  up  the  expenses  of 
current  years  to  be  met  out  of  the  revenues  of  year§  to 
come.  ^ 

To  assume  that  such  funds  when  accurately  presented 
through  accoimts  must  necessarily  be  "fictitious"  is  to 


indict  the  mtegrity  of  every  resource  and  liability  account 
other  than  cash  kept  by  a  private  corporation,  and  the  in- 
teUigence  of  every  admmistrative  judgment  based  thereon. 
To  state  that  the  capital  balance  sheet  when  applied  to 
Conclusion  municipal  enterprises  is  meanmgless  and 
misleading,  reflects  not  on  the  methods  used 
for  obtaining  mformation  as  a  basis  for  administrative 
judgment,  but  condemns  the  one  who  indicts  it.  The  con- 
clusion that  the  categories  used  in  capital  balance  sheets 
when  applied  to  municipalities  are  misleading,  and,  there- 
fore, not  to  be  used,  is  premised  on  an  assumption  that  no 
information  is  needed  other  than  a  statement  of  receipts 
and  disbursements  with  its  residual  balance  of  cash.  This 
assumption  fails  to  consider  every  question  of  economy, 
every  question  of  efficiency,  and  every  question  of  trustee- 
ship other  than  that  relating  to  the  custodianship  of  money. 
Another  defect  is  also  found  in  this  kind  of  reasoning, 
namely,  that  no  financial  statement  is  to  be  considered  of 
importance,  except  one  by  means  of  which  may  be  ascer- 
tained the  amount  of  resources  immediately  available  for 
the  payment  of  debt.  This,  again,  is  based  on  erroneous 
assumption,  viz.,  that  the  payment  of  debt  is  the  only 
administrative  responsibiHty  which  a  municipal  officer  has 
to  meet  or  in  which  the  citizen  is  interested.  That  the 
admmistrative  significance  of  the  balance  sheet  has  not 
been  considered  by  those  who  deny  its  usefulness,  cannot 
be  more  conclusively  shown  than  by  the  analysis  of  the 
accounts  and  the  financial  statements  of  municipalities 
to  which  such  a  method  has  not  been  appHed.  In  the 
city  of  New  York,  for  example,  its  officers  hold  in  trust 
properties  and  equipment  which  have  cost  not  less  than 
$i,ooo,ooo,ocx),  without  an  account  being  carried  on  the 
books  to  represent  the  present  cost  of  any  property,  or 
even  to  preserve  a  list  of  the  real  estate,  buildmgs,  and 


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THE  MUNICIPAL  BALANCE  SHEET 


equipment  which  the  city  owns;  as  a  result  of  which  it 
has  more  than  once  paid  for  properties  to  which  it  has 
already  acquired  a  title.  Each  year  these  officers  pur- 
chase and  have  delivered  to  warehouses  or  municipal 
stores  not  less  than  $20,000,000  worth  of  suj^plies  and 
material  for  fully  one-half  of  which  no  store  accounts  are 
kept,  and  such  as  are  kept  are  nothing  more  than  memo- 
randa, not  being  under  accounting  control.  Construc- 
tions and  betterments  are  written  ofiF  as  soon  as  completed 
and  no  accounting  control  has  been  maintained  over 
departmental  expenses.  LiabiHties,  amounting  to  millions 
of  dollars,  are  not  kept  on  the  books,  either  of  a  depart- 
ment or  in  its  central  office.  Each  year  most  elaborate 
statements  of  receipts  and  disbursements  are  prepared 
and  published  without  shedding  any  light  whatever  on 
the  many  problems  relating  to  municipal  activities,  which 
should  be  reflected  in  the  accounts  and  publish(?d  reports. 
Moreover,  these  reports  are  usually  so  late  in  their  appear- 
ance as  not  to  be  of  aid  even  as  information  collateral 
for  the  making  of  the  budget.  The  administrative  sig- 
nificance of  accoimting  and  reporting  has  been  in  a  large 
measure  lost  sight  of,  and  ninety-five  per  cent  of  all  our 
American  municipalities  are  in  the  same  dilemma.  It  is 
therefore  urged  that  accoimts  through  which  information 
may  come  to  the  public  in  balance  sheet  form  is  one  of 
the  most  urgent  needs  of  modern  municipal  affairs. 


CHAPTER  XI 

The  Administrative  Importance  of  Distinguishing 
BETWEEN  Revenues  and  Expenses  and  Receipts 
AND  Disbursements  in  Municipal  Accounting  ^ 

The  degree  of  elaboration  here  given  to  the  two  sets 
of  ideas  —  revenues  and  expenses  on  the  one  hand  and 
receipts  and  disbursements  on  the  other  —  would  seem 
without  warrant  before  a  Convention  of  Accountants  were 
it  not  for  the  fact  that  the  general  practice  in  municipalities 
of  the  United  States  is  to  confuse  them.  Few  American 
cities  have  a  complete  system  of  accounts.  They  have 
various  books  of  original  entry  and  departmental  records; 
prominent  among  these  are  the  accounts  of  the  municipal 
treasury.  The  "cash  account''  is  classified  and  sub- 
divided and  differentiated  by  bureaus  and  by  depart- 
ments and  stated  with  a  degree  of  elaboration  and 
complexity  that  has  led  many  municipal  officers  and 
citizens  to  think  that  in  this  they  have  a  comprehensive 
system.  In  most  cases,  it  may  be  said,  memoranda  are 
kept  of  other  financial  transactions  which  might  have 
been  classified  and  correlated  and  reduced  to  a  complete 
system  of  accounts,  but  they  are  not.  Many  cities  have 
complete  data  in  the  form  of  books  of  original  entry;  these 
again  might  have  been  used  as  subsidiary  and  supporting 
records  to  a  complete  system  of  controlled  accounts. 

Few  of  our  municipal  accounting  officers  have  even 

*  Paper  read  before  the  Congress  of  Accountants  held  at  St.  Louis, 
Mo.,  September  26,  1904. 


r 


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156        REVENUE  AND  EXPENSE  ACCOUN'I^ 

considered  the  need  for  accounts  of  expenses  and  revenms 
and  of  keeping  records  which  will  exhibit  any  relation  of 
service  rendered  to  expense  incurred;  nor  have  they 
endeavored  to  bring  into  alignment  cost  of  service  with 
current  revenue  provisions  made  for  meeting  expenses. 
Responsible  officers  are  unable  to  obtain  these  results  for 
their  own  guidance.  The  Bureau  of  the  Census  in  its 
attempt  to  collect  the  municipal  financial  data  with  respect 
to  the  assets  and  liabilities  and  revenues  and  expenses  of 
municipalities  has  not  been  able  to  obtain  complete  in- 
formation from  the  books  on  any  subject  other  than  cash 
receipts  and  cash  disbursements.  The  publishtid  reports 
of  cities  contain  litde  else  than  exhibits  of  the  flow  of 
cash.  Citizens  and  taxpayers  are  not  able  to  learn  from 
the  published  reports  or  from  the  accounting  officers  the 
facts  necessary  to  judge  as  to  the  efiiciency  of  adminis- 
tration in  any  of  its  departments. 

ELEMENTS   ESSENTIAL   TO   A   COMPLETE    SYSTEM    OF 

MUNICIPAL   ACCOUNTS 

A  system  of  municipal  accounts  is  a  method  or  means 
whereby  all  of  the  financial  transactions  and  all  of  the 
data  pertaining  to  the  financial  management  of  the  city 
are  (i)  collected,  (2)  classified,  and  (3)  finally  coordinated 
around  problems  of  municipal  administration.  The 
books  and  records  are  simply  instruments  used  for  accom- 
pHshing  the  ends  above  indicated.  These  three  essentials 
of  a  system  must,  therefore,  be  represented  in  the  books 
and  in  the  records  kept. 

The  books,  vouchers,  and  other  records  of  original 
entry  are  kept  for  the  purpose  of  collecting 

AU  data  must      r-ijf        rT-i_i.       , 

be  coUected       nnancial  data.    1  o  be  complete  they  must 

contain  evidence  of  all  transactions,  whether 

of  cash  or  of  operative  relations.     But  for  this  purpose  no 


REVENUE  AND  EXPENSE  ACCOUNTS    157 


classification  or  final  statement  of  accoimt  is  necessary. 
In  a  small  business  such  data  are  usually  kept  in  a  day 
book  in  chronological  order,  because  of  the  greater  con- 
venience in  making  current  entries.  So  far  as  the  pur- 
pose of  the  record  is  concerned,  the  only  need  for  order 
or  for  having  any  system  about  these  data  is  to  know 
that  all  transactions  have  been  recorded,  and  to  aid  the 
proprietor  or  management  in  locating  the  evidence  of  a 
transaction  when  such  evidence  is  desired. 

In  small  concerns  separate  books  or  records  of  classi- 
fication  are  kept.  These  are  known  as  journals.  To 
"journalize"  means  to  classify.  Usually,  in  large  enter- 
prises and  in  municipalities  having  complete  systems, 
for  reasons  of  economy  the  books  of  original  entry  or 
those  used  to  collect  the  financial  data  are  themselves 
classified,  thus  forcing  a  classification  of  the  data  recorded 
at  the  time  of  making  the  original  entry.  In  whatever 
form  they  are  found,  however,  books  of  original  entry 
Each  transac-  ^^^  ^^  classification  are  not  books  of  final 
tion  must  be  account.  They  simply  record  isolated  facts 
smed'*^  ^^**"  and  register  the  judgment  of  the  auditor  or 
other  accounting  authority  as  to  the  account 
to  which  a  particular  isolated  transaction  belongs.  These 
books  and  records  for  the  collection  and  classifi^^ation  of 
data  are  necessary  to  a  complete  system  of  accounts,  but 
they  must  be  regarded  as  purely  subsidiary  and  support- 
ing documents. 
The  accounts  themselves  are  found  in  the  third  class  of 
books  or  records  indicated,  viz.,  hooks  offiruil 
coordination.  In  municipalities  they  are  of 
two  kinds:  (i)  special  and  departmental 
ledgers,  and  (2)  general  ledgers.  Complete- 
ness in  the  general  ledgers  (the  controlling 
accounts  themselves)  is  usually  lacking  in  American  munici- 


All  facts  must 
be  coordinated 
around  prob- 
lems of  admin- 
istration 


H  ) 


158        REVENUE  AND  EXPENSE  ACCOUNTS 


palities.  A  city  may  have  the  vouchers,  the  memoranda 
and  other  forms  of  original  entry  of  every  transaction  and 
financial  relation,  but  these  are  left  incomplete  both  in 
their  classification  and  in  their  final  coordination.  In 
many  instances,  even  the  records  of  vouchers  and  the 
books  of  original  entry  of  transactions  are  also  defective. 
The  only  transactions  pertaining  to  which  there  has  been 
a  imiform  demand  for  completeness  in  municipal  account- 
ing are  those  which  have  to  do  with  the  municij)al  treasury 
—  the  "cash"  accounts  of  a  city. 

ESSENTIAL  DIFFERENCE  IN  THE  NATURE  OF  EXPENSES 
AND  REVENUES  AS  DISTINGUISHED  FROM  RECEIPTS 
AND  DISBURSEMENTS 

Corporate  limitations  and  necessities  on  the  one  hand 
and  corporate  purposes  on  the  other  determine  the  classi- 
fication of  accounts.  Corporate  limitations  and  neces- 
sities inhere  in  the  fact  that  a  city  is  impotent  to  act  or 
Two  general  render  service  without  physical  equipment 
classes  of  ac-  adapted  to  its  ends.  Its  corporate  pur- 
^^^  poses  are  principally  in  the  public  service 

rendered  or  to  be  rendered.  Conformably  to  these  con- 
trolling needs  and  conditions,  administrative  problems  are 
of  two  general  classes,  and  for  this  reason  the  accounts 
of  a  municipality  (in  any  complete  system)  must  be  grouped 
aroimd  two  general  categories,  viz.:  (i)  those  of  pro- 
prietorship and  (2)  those  pertaining  to  service  or  operation. 

Accounts  of  proprietorship  relate  to  ownership  (or  to 
assets  acquired)  and  to  financial  obligations  (or  to  lia- 
bihties  incurred)  by  the  city  acting  in  its  proprietary  or 
The  balance-  Corporate  capacity.  Cash  is  an  asset.  It 
sheet  item  reflects  relations  of  proprietorship  only. 
^^  Receipts   and   disbursements  indicate    the 

volume  and  direction  of  the  flow  of  cash.     AccourUs  of 


REVENUE  AND  EXPENSE  ACCOUNTS         159 

service  rendered  pertain  to  cost  of  service  and  to  the  pro- 
visions made  for  meeting  this  cost.  Expenses  and  revenues 
are  the  terms  used  to  characterize  the  two  classes  of  con- 
trollmg  accounts  which  have  reference  to  the  two  prin- 
cipal aspects  of  municipal  service,  as  distinguished  from 
controlling  accounts  representing  relations  of  proprietor- 
ship —  or  assets  and  liabilities.  Accounts  of  receipts  and 
disbursements  have  no  reference  to  service  rendered.  They 
pertain  to  the  other  general  category  referred  to  as  pro- 
prietary accounts.  Receipts  and  disbursements  are  the 
names  given  to  the  debit  and  credit  sides  of  an  asset 
account.  By  a  process  of  subtraction  of  ''disbursements" 
from  ''receipts"  the  "balance"  of  current  funds  on  hand 
at  a  given  moment  is  shown. 

In  accounts  "  revenues  "  are  not  "  cash."  The  revenue 
account  records  the  total  accruals  from  tax  levies,  fines, 
fees,  licenses,  etc.,  during  the  period  for  which  it  is 
kept.  A  statement  of  revenues  is  a  record  of  increments 
of  wealth  to  be  used  for  the  current  support  of  govern- 
ment; these  increments  are  usually  in  the  form  of  rights 

The  operation     }^  ^^^^'''^  °'''''^>^»  ^^^  payment  of  which, 
account  however,  may  be  deferred  for  months  and 

even  for  years;  receipts  have  reference  to 
cash  only.  Revenues  do  not  include  accruals  that  are 
not  intended  for  current  support  of  government,  such  as 
assets  obtained  on  account  of  the  sale  of  bonds,  temporary 
loans,  or  other  credit  contracts.  Receipts,  on  the  other 
hand,  comprehend  all  cash  received  from  whatever  source. 
Revenues  do  not  mclude  transactions  in  the  nature  of 
sales  of  permanent  properties  and  equipment;  receipts 
include  the  amount  of  cash  realized  on  every  class  of 
sale. 

Revenues  have  to  do  with  all  transactions  which  are 
carried  on  for  the  purpose  of  obtaining  a  financial  increase 


f" 


160   REVENUE  AND  EXPENSE  ACCOUNTS 

as  a  means  of  carrying  on  the  operations  of  the  munici- 
pality and  of  maintaining  its  physical  equipment.  The 
revenue  account  is  not  made  up  from  the  same  original 
entries  or  vouchers  as  is  the  cash  accoimt.  Tax  revenues 
are  drawn  from  the  roll  of  tax  levy;  license  revenues  are 
made  up  from  the  license  registers;  revenues  from  fees 
are  taken  from  dockets  and  fee  books;  revenues  from 
municipal  industries  are  drawn  from  the  various  industrial 
income  accoimts.  Accoimts  of  revenue  are  made  up  from 
records  kept  of  increments  of  wealth  (usually 
sources*  of  rey-  ^  the  form  of  rights  to  receive)  for  current 
enuc  accounts  administrative  purposes.  The  accounts  of 
and  cash  re-      ^^^^  receipts  are  drawn  from  records  kept 

ceipts 

of  cash  actually  taken  in;  the  fact  that  any 
amount  of  money  was  received  on  account  of  revenue 
accruals  of  previous  years,  or  that  the  transaction  per- 
tained to  the  issue  of  bonds,  makes  it  no  less  a  cash  receipt. 
The  accounts  of  cash  receipts  are  drawn  from  the  records 
and  statements  made  to  the  treasurer  of  Ucenses  and  fees 
paid,  etc.,  and  in  mimicipal  industries  from  cash  books; 
or  if  the  treasurer  of  the  mimicipality  is  custodian  of  these 
fimds,  from  statements  of  cash  returned  to  him.  For 
the  purpose  of  determining  revenues  accrued  no  inquiry 
is  made  as  to  the  amount  of  cash  received  on  account  of 
these  accruals.  For  the  purpose  of  determining  receipts 
no  thought  may  be  had  of  revenue  accruals.  The  two 
statements  are  absolutely  separate  and  distinct  categories 
of  business,  of  accounts,  and  of  finance. 

The  same  general  distinction  may  be  made  between 
accoimts  of  expense  and  accounts  of  disbursement.  A 
statement  of  expenses  shows  the  total  amount  of  cost  in- 
curred in  an  enterprise,  public  or  private,  on  account  of 
current  operations  and  maintenance.  This  statement  is 
drawn  from  records  of  cost  and  has  no  reference  whatever 


REVENUE  AND  EXPENSE  ACCOUNTS        161 

to  payments  in  cash.  "Cost"  and  "Cash  paid"  have 
very  different  meanings.  The  entire  expense  or  cost  may 
have  been  incurred  for  a  period  stated  without  a  dollar 
having  been  paid  out  or  disbursed.  Again,  during  the 
same  period,  there  may  have  been  disbursements  amount- 
ing to  many  times  the  expenses  incurred.  In  a  banking 
Accounting  business,  for  example,  a  statement  of  ex- 
sources  of  ex-  penses  incurred  for  a  given  year  would 
penses  and  dis-  include  Summaries  of  salaries  and  wages. 

bursements  ,        .  ,.  ,  . 

rents,  msurance,  supphes  and  stationery, 
taxes,  interest  on  account,  etc.  For  a  given  institution 
this  may  amount  to  ten  thousand  dollars.  During  the 
same  period  the  same  institution  may  have  received  and 
disbursed  several  hundred  thousand  dollars.  A  city 
having  current  expenses  amoimting  to  a  half  million  dol- 
lars per  annum  may,  through  various  refunding  processes, 
disburse  a  million  and  a  half.  A  statement  of  revenues 
and  expenses  is  a  summary  made  up  from  all  the  accounts 
of  a  municipality  which  have  to  do  with  cost  of  operation 
and  with  the  provisions  made  for  meeting  this  cost.  Such 
a  statement  and  summary  is  based  on  vouchers  and  reports 
drawn  from  every  department  and  bureau.  Statements  of 
receipts  and  disbursements,  on  the  other  hand,  pertain  to 
the  municipal  treasury  alone.  They  are  the  summaries  of 
transactions  of  the  "receiving"  and  "paying"  tellers  of 
the  municipality.  The  cash  balance  or  "Cash  on  hand" 
is  one  of  the  items  of  municipal  assets.  The  balance  ob- 
tained from  current  revenue  and  expense  accounts  shows 
the  revenue  surplus  or  deficiency  for  the  fiscal  period. 

DIFFERENCE  IN  ADMINISTRATIVE  PURPOSES  OF  THE  TWO 

CLASSES  OF  ACCOUNTS 

Another  line  of  demarkation  is  found  in  the  diflFerent 
administrative  purposes  of  these  two  classes  of  accounts. 

12 


li 


162        REVENUE  AND  EXPENSE  ACCOUNTS 

The  purpose  of  assembling  the  financial  data  of  a 
municipal  undertaking  around  the  two  categories  expense 
and  revenue  is  to  enable  those  interested  in  the  public 
service  to  reach  conclusions  with  respect  to  economy  and 
efl&ciency  of  administration ^  and  the  relation  of  cost  to 
provisions  made  for  meeting  it.  In  these  the  taxpayer 
is  financially  interested  as  the  contributor  of  fimds  for 
the  support  of  current  municipal  activity;  he  would  have 
Purpose  of  economy  as  a  means  of  reducing  his  own 
expense  and  personal  expenses;  the  citizen  is  interested 
revenue  ac-  \^  economy  as  the  one  for  whose  benefit 
coun  ^^  corporation  was  organized  and  is  main- 

tained; for  him  the  greater  the  economy  the  greater  the 
amount  of  service  available.  The  officer  of  the  pubHc 
corporation  is  also  interested  in  well-authenticated  state- 
ments of  revenues  and  expenses  as  a  means  of  protection 
and  as  a  guide  to  official  judgment;  such  an  assembling 
of  data  is  necessary  to  the  proper  guidance  of  the  affairs 
with  which  he  is  interested  and  for  the  direction  of  officers 
under  him.  A  detailed  and  comprehensive  statement  of 
expenses  is  essential  to  a  proper  appreciation  of  cost  to 
service  rendered.  A  comparative  statement  of  expenses  and 
revenues  serves  two  purposes  of  administrative  economy: 
(i)  Such  an  exhibit  is  necessary  to  determine  whether 
adequate  provision  has  been  made  to  cover  the  costs  of 
operation  and  maintenance  in  the  past;  and  (2)  a  com- 
parative statement  of  past  expenses  and  revenues  is  the 
only  safe  guide  to  budgetary  estimates  and  appropriations 
for  the  future. 

Accounts  of  receipts  and  disbursements ^  on  the  other 
hand,  serve  quite  a  different  administrative  purpose. 
As  before  suggested,  statements  of  receipts  and  disburse- 
ments are  statements  pertaining  to  the  cash  account. 
The  cash  account  does  not  and  cannot  of  itself  represent 


REVENUE  AND  EXPENSE  ACCOUNTS        163 

any  feature  of  administrative  economy.  The  one  side 
of  a  cash  account  shows  the  cash  taken  in,  and  the  other 
side  shows  cash  paid  out.  Money  balance  is  an  asset. 
Money  taken  in  is  not  a  revenue.  Money  paid  out  is 
Purpose  of  ^^^  ^  expense.  Money  may  be  derived 
accounts  of        from   "taxes  receivable,"   from   "accounts 

dSem^nts     f^^^^f  1^>"  ^om  "judgments  receivable,'' 
from    sales  of  bonds"  or  other  "credit  con- 
tracts payable,"  or  from  the  sale  of  buildings  and  equip- 
ment.   Receipts  and  payments  have  relation  to  asset  and 
Hability  accounts  only.    In  making  provision  to  meet 
current  UabiHties  appropriations  are  made,   and   these 
appropriations  may  have  separate  accounts  in  the  treasury 
department,  or  may  be  separately  set  up  on  "appropria- 
tion ledgers."    But  for  purposes  of  final  statements  of 
asset   and   HabiHty   accounting,   it   is  of   administrative 
importance  to  know  the  amount  of  receipts  and  disburse- 
ments with  respect  to  each  fund,  the  purpose  for  which 
the  funds  have  been  expended,  and  the  balance  on  hand. 
It  is  of  importance  to  the  taxpayer,  the  citizen,  and  the 
administrative  officer,  also,  to  know  that  those  into  whose 
hands  the  properties  of  the  city  are  placed  have  been 
faithful  to  their  trust.    Aside  from  the  fact  that  a  depart- 
ment record  is  an  integral  part  of  a  general  system  of 
accounts,  and  for  this  reason  is  necessary  to  an  intelligent 
controlling  summary  of  assets  and  UabiHties,  the  officer 
Purpose  of        entrusted  with  funds  must  be  held  to  an 
trust  accounts    account  for  his  Stewardship.    One  of  the 
most   important   of    departmental   records 
reflecting  relations  of  fideHty  is  that  of  the  municipal 
treasury.     Besides  an   asset  statement  of  cash-balance, 
therefore,  accounts  of  receipts  and  disbursements  are  im- 
portant as  a  means  of  insuring  fidelity  of  service  and  pro- 
tecting the  corporation  against  losses  due  to  peculation  and 


•4 


lii 


/ 


■11 


ml 


164        REVENUE  AND  EXPENSE  ACCOUNTS 

misappropriation.  These  two  classes  of  administrative 
purposes,  however,  pertaining  to  accounts  of  receipts  and 
disbursements,  are  quite  separate  and  distinct  from  th© 
purposes  governing  accounts  of  expenses  and  revenues. 

THE  REASON  WHY  THE  "  CASH-BOOK "  ACCOUNTS  ARE  THE 
PRINCn»AL  ONES  KEPT  IN   AMERICAN  MUNICIPALITIES 

The  fact  that  the  cash-book  accounts  are  the  principal 
ones  kept  by  American  cities  is  not  without  reason.  The 
cash-book  is  the  first  record  developed  in  the  evolution  of 
accoimting  methods.  Until  comparatively  recent  date, 
"tallies"  were  used  by  British  government.  In  primitive 
enterprises,  one  not  so  large  that  every  detail  and  trans- 
action may  not  be  performed  by  the  proprietor  himself, 
Cash  the  fii«t  there  may  be  an  entire  absence  of  record, 
asset  to  be  Even  when  memoranda  are  kept  no  attempt 
s*^^^  is  made  to  classify  them  and  reduce  them 

to  a  form  of  final  statement.  The  first  necessity  for 
complete  records  comes  with  the  introduction  of  employees 
into  the  business,  charged  with  the  custodianship  of 
property  which  may  readily  be  misappropriated. 

The  most  easily  disposable  property  is  cash.  The  primi- 
tive cash  account  was  used  as  a  means  of  detecting  infi- 
delity among  servants  or  employees.  This  at  best  could 
not  be  more  than  a  special  record,  since  it  leaves  out  of 
consideration  all  transactions  not  accompanied  by  cash. 
To  the  cash-book  as  a  beginning  were  added  other  books 
of  asset  and  liabiUty  account.  Based  on  the  principle 
of  fidelity  of  servants  and  of  protection  to  the  proprie- 

Singie  entry  ^^^'  ^^^^^  ^^^  finally  developed  a  complete 
the  first  ac-  System  of  asset  and  liability  accounts.  In 
counting  the   evolution  of   business   the  first    com- 

method  1 

plete   accountmg  system  was  the  "single- 
entry"  system,  which  gave  a  complete  record  of  financial 


REVENUE  AND  EXPENSE  ACCOUNTS    105 

transactions  and  grouped  them  around  categories  of  pro- 
prietorship and  relations  of  fidelity. 

The  single-entry  system,  however,  was  not  found  well 
adapted  to  the  modem  and  more  complex  business  develop- 
ment. From  the  primitive  simpUcity  of  a  one-man  trades- 
man's establishment  to  the  complexity  of  modem  corporate 
organization,  in  which  an  army  of  employees  is  brought 
under  cooperative  management,  with  an  estate  worth 
millions  or  even  billions  of  dollars,  there  has  been  an  evo- 
lution in  accounting  methods  which  not  only  would  pro- 
tect the  proprietor  against  infideUty  of  his  many  servants 
and  employees,  but  would  also  give  to  the  one  in  control 
such  information  as  will  enable  him  intelligently  to  direct 
the  enterprise. 

The  proprietor  and  the  management  must  have  a  sys- 
tem that  would  insure  efficiency  as  well.  With  depart- 
mental organization,  with  the  division  of 
dwbie*entry  Service  into  cohorts  and  battalions,  each 
cohort  working  under  its  captain,  who  is 
responsible  to  the  head  of  a  department,  the  heads  of 
departments  in  turn  being  accountable  to  a  chief  execu- 
tive —  imder  such  conditions  and  with  such  an  organiza- 
tion, central  administration  requires  that  all  of  the  data 
pertaining  to  operation  be  assembled,  classified,  and  finally 
stated  in  accounts  such  as  would  lay  the  foundation  for 
the  exercise  of  mature  administrative  discretion.  Without 
a  method  of  obtaining  complete  information  conceming 
every  question  to  be  admmistered  on,  which  would  pro- 
duce this  information  accurately  and  promptly,  intelli- 
gent judgment  could  not  be  exercised.  A  second  and  more 
advanced  system  of  accounts  was  developed  (known  as 
the  "double-entry"  system),  in  which  the  aim  was  not  only 
to  collect  all  of  the  financial  data  of  a  business  and  to 
assemble  them  around  the  "single"  relation  of  proprietor- 


166        REVENUE  AND  EXPENSE  ACCOUNTS 


ship,  but  to  distribute  these  in  "double"  relation,  viz., 
(i)  to  accounts  of  assets  and  Uabilities,  and  (2)  to  cate- 
gories of  income  and  expense,  from  which  might  be  drawn 
summaries  of  profit  and  loss,  financial  distribution  and 
surplus.  And  in  further  elaboration  of  which  accurate 
and  current  cost  data  might  be  made  available  in  every 
service  and  activity. 

Even  in  private  business  this  development  has  been 
comparatively  recent,  and  in  America  accounting  ideals 
remained  undeveloped  long  after  they  had  risen  to  a 
basis  of  scientific  classification  abroad.  As  has  been 
pointed  out  before,  this  was  largely  due  to  the  lateness  of 
our  national  development.  The  fact  that  the  cash-book 
is  still  the  central  feature  in  the  accounts  of  American 

Recent  devei-  ^^^^^^  ^^^  ^^  ^^  explained  by  their  com- 
opment  of  ad-  paratively  recent  origin  and  by  their  failure 
ministrative  to  appreciate  the  necessity  of  a  well-organ- 
ized  system  of  double-entry  accounts,  not 
only  as  a  means  of  insuring  ofiicial  fidehty,  but  also 
for  purposes  of  mimicipal  control  and  the  attainment  of 
higher  administrative  efficiency.  The  accounts  of  munici- 
palities (even  of  many  of  our  largest  cities)  are  primitive. 
They  are  of  the  kind  that  would  be  found  in  a  business 
amounting  to  a  few  thousand  dollars  per  year,  m  which 
the  cash-book  is  the  principal  record  kept. 

It  has  been  said  that  the  smaller  cities  need  nothing 
more  than  a  statement  of  receipts  and  disbursements. 
This  may  be  admitted  on  the  same  principle  that  a  small 
merchant  needs  nothing  more  than  a  cash-book  or  that  a 
peanut  vender  needs  no  books  at  all.  If  the  business  of 
a  town  or  village  is  so  small  that  all  of  the  administrative 
facts  and  relations  may  be  held  in  mind  both  by  officers 
and  citizens,  and  the  properties  and  Uabilities  are  not 
important,  then  an  accounting  for  "cash"  may  serve  the 


II 


REVENUE  AND  EXPENSE  ACCOUNTS    167 

need.  The  need  for  books  of  account  is  a  relative  one. 
The  whole  question  is  to  determine  at  what  period  in 
the  development  of  municipal  enterprises  a  complete 
system  (either  "single"  or  "double"  entry)  is  necessary 
to  the  intelligent  direction  of  affairs. 

"The  business  of  this  city  is  on  a  cash  basis;  we  there- 
fore need  no  accounts  other  than  those  of  cash."  This 
is  the  answer  usually  given  to  a  criticism  that  a  particular 
municipality,  large  or  small,  has  no  accounts  of  revenue 
accrued  and  expenses  incurred.  While  the  answer  is 
offered  in  good  faith,  and  the  one  offering  it  may  be  strong 
m  the  beUef,  yet  neither  the  premise  nor  the  conclusion 
is  true  of  an  American  city,  and  it  may  be  doubted  if  it 
is  true  of  any  city.    What  is  really  meant 

"clSi**bMis»  ^^  ^^^^*  '^^^  ^^^y  ^^^  borrowed  money,  by 
hypothecation  of  its  revenues  or  otherwise, 
to  meet  current  obligations.  It  is  paying  one  class  of 
creditors  by  means  of  cash  obtained  on  credit  from 
another  class  of  creditors.  There  is  not  a  city  in  the 
country  whose  revenue  collections  for  a  given  year  are 
not  from  six  months  to  two  years  (in  some  cases  even 
three  or  five  years)  behind  the  expenses  incurred  for  the 
same  period.  In  ordinary  affairs  business  done  by  means 
of  current  borrowing  is  not  considered  a  "strictly  cash 
business."  It  is  this  situation  that  makes  so  difficult 
even  a  statistical  approximation  of  current  revenues  and 
expenses  from  accounts  reflecting  treasury  transactions. 

But  even  assuming  that  a  city  were  in  such  circumstances 
that  it  were  not  necessary  to  borrow,  assuming  that  its 
revenues  were  all  paid  on  the  very  day  that  they  are 
made  payable,  still  the  administrative  need  for  operative 
accoimts  (showing  relations  of  cost  to  provision  made 
for  meeting  cost)  would  be  just  as  necessary  to  efl&cient 
government.    There  is  no  form  of  enterprise  whose  rev- 


h 


168    REVENUE  AND  EXPENSE  ACCOUNTS 


I 


II 


i  I  i 


if 


enues  are  more  nearly  on  a  cash  basis  than  a  raibroad 
company.  And  there  is  no  organization  whose  adminis- 
trative officer  watches  more  closely  accounts  of  revenues 
and  expenses.  Those  railroads  whose  accounts  do  not 
give  this  information,  or  whose  administration  does  not 
use  the  data  so  collected  and  classified  as  a  basis  for 
judgment,  have  either  long  since  passed  into  history  or 
are  fast  approachuig  that  abyss  which  awaits  the  financial 
suicide.  The  operative  head  of  a  large  transportation 
Cash  account!  company  seldom  looks  at  the  cash  state- 
do  not  give  ment  of  receipts  and  disbursements.  These 
operative  re-      are  for  the  Consideration  of  the  financial 

sul^s  _  J.  _ 

department.  The  president  of  a  railroad 
knows  that  administrative  efficiency  and  administrative 
success  must  be  the  results  of  judgments  made  with  re- 
spect to  cost  of  operation  and  financial  return  for  service 
performed.  If  these  judgments  be  such  as  to  leave  a 
small  margin  of  profit,  or  even  if  only  that  o])erative  cost 
be  met,  the  financial  head  of  the  organization  will  be  able 
to  provide  the  cash.  Whether  the  cash  is  provided  out 
of  current  revenue  collections,  or  from  bills  and  accounts 
receivable,  accrued  from  past  operations,  or  from  tem- 
porary loans,  he  has  little  concern,  except  in  so  far  as 
these  financial  transactions  may  increase  expenses  and 
make  his  operative  problem  the  more  difficult. 

When  the  administrative  heads  of  our  municipal  cor- 
porations may  have  accurate  current  accounts  of  revenues 
and  expenses^  and  when  their  judgments  may  be  made 
with  respect  to  these,  and  they  in  turn  shall  be  judged 
according  to  the  efficiency  of  their  own  administration 
measured  by  standards  of  cost  and  service  rendered,  we 
may  look  for  the  dawn  of  a  new  day.  In  the  business 
world  failure  to  adopt  proper  methods  is  marked  by 
financial  failure;  as  a  result  the  administrative  methods 


II 


REVENUE  AND  EXPENSE  ACCOUNTS         169 

which  survive  are  those  which  are  efficient  —  those  which 
are  adapted  to  success.  With  a  city,  however,  the  fact 
that  it  cannot  be  permitted  to  go  out  of  business  so  long 
as  the  conmiunity  remains,  makes  the  question  of  determin- 
So  d  iud  -  "^S  J^st  when  a  modern  method  of  account- 
ment  requireg  ing  shall  be  appHed  wait  on  the  exercise 
operative  ac-  of  political  rather  than  business  discretion, 
counts  Municipal  administrative  methods  cannot  be 

improved  through  the  operation  of  that  principle  of  evo- 
lution known  as  the  "survival  of  the  fittest,"  except  as 
this  principle  is  applied  to  parties  in  power.  Reform 
must  come  through  a  perception  of  municipal  needs  and 
through  a  force  in  the  form  of  popular  demand  that  will 
break  through  the  lethargy  of  custom  and  compel  an 
abandonment  of  primitive  business  methods. 

HOW  A  CLASSIFIED  STATEMENT  OF  CASH  RECEIPTS  AND 
DISBURSEMENTS  MAY  CONTRIBUTE  TO  IMPROVED 
METHODS  OF  ACCOUNTING 

That  any  change  is  beneficial  which  will  give  to  the 
administration  and  to  the  people  a  better  understanding 
of  municipal  affairs  will  not  be  gainsaid.  In  the  absence 
of  a  complete  system  of  accoimts  the  transactions  of  the 
treasury  may  be  so  classified  that  by  process  of  statistical 
compilation  and  mathematical  reasoning  a  fair  approxi- 
mation as  to  results  may  be  reached.  It  is  for  the  reason 
that  some  Ught  is  better  than  none,  that  a  published 
report  of  classified  receipts  and  disbursements  is  to  be 
Incomplete  welcomed.  Not  that  the  cash  books  can 
cash  data  ever  be  made  into  a  complete  system  of 

better  than  accoimts  —  nor  that  statistics  drawn  from 
^^^^  cash  books  can  take  their  place.    Not  that 

a  report  of  cash  receipts  and  cash  disbursements  can  ever 
give  the  administration  the  best  basis  for  intelligent  con- 


j 


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ifliiil 


I 


170        REVENUE  AND  EXPENSE  ACCOUNTS 

trol,  the  details  of  whose  business  are  not  entirely  under 
the  direct  scrutiny  of  its  chief  executive;  nor  that  a  state- 
ment made  of  cash  receipts  and  cash  disbursements  can 
ever  give  to  the  public  the  information  necessary  to  a 
proper  estimate  of  the  ability  and  economy  of  their 
agents.  But  whenever  resort  is  had  to  a  rearrangement 
of  the  cash  account  as  a  means  of  supplying  statistical 
information  of  this  kind,  such  action  on  the  part  of 
officers  is  to  be  considered  as  an  attemj)t  to  get  at 
results  which  before  were  unattainable,  and  to  deduce 
from  such  accounts  as  are  kept  conclusions  which  are 
not  found  in  the  "footings"  —  viz.,  to  get  at  revenues 
and  expenses.  Such  an  efiFort,  while  it  may  require  a 
process  of  mathematical  computation  to  enable  tliose  in 
control  to  get  a  better  basis  for  administrative  considera- 
tion, is  in  itself  an  admission  of  a  need  for  a  complete 
double-entry  system  of  accounts. 

Attempt  has  been  made  to  justify  the  classification  of 
receipts  and  disbursements  around  categories  of  revenues 
and  expenses  on  another  groimd,  viz.,  that  the  city's 
accounting  officers  must  be  led  on  step  by  step  — that 
they  cannot  appreciate  nor  operate  a  com])lete  system. 
While  the  introduction  of  a  classification  of  receipts  and 
disbursements  in  lieu  of  accounts  of  revenues  and  expenses 
may  be  justified  as  an  immediate  step  demonstrating  the 
limitations  of  such  a  practice,  the  relation  which  this  bears 
to  the  evolution  of  accounting  systems  is  not  correcdy 
perceived.  Any  attempt  to  restate  the  cash-book  to  give 
results  desired  as  a  beginning  in  the  instaUation  of  a 
complete  double-entry  system  of  accountmg  starts  the 
^, .  t_     ..       evolution  at  the  wrong  place.    From  the 

Mistaken  idea  r  i       i  .  r 

of  progress        cash-book  a  system  of  accounts  can  never 

be  developed  without  abandoning  the  very 

methods  which  are  here  applied  as  a  first  step  in  the 


REVENUE  AND  EXPENSE  ACCOUNTS         171 

evolution,  viz.,  the  classification  of  receipts  and  disburse- 
ments around  subjects  of  revenue  and  expense.  As  soon 
as  accoimts  of  revenue  and  expense  are  set  up,  there  is 
no  further  use  for  the  statistical  method  which  before 
was  appUed  to  the  cash  accoimt.  After  the  introduction 
of  a  complete  system  of  double-entry  accounting  the  only 
cash  accounts  that  need  be  kept  in  the  general  ledgers 
and  the  only  statistical  statements  of  cash  which  need  be 
made  are  those  which  relate  to  funds  and  appropriations. 
The  evolution  which  comes  from,  and  which  is  to  fol- 
low, a  classified  cash-book  must  be  regarded  as  a  develop- 
ment in  the  perception  of  a  need  for  a  complete  system  of 
accounts  —  rather  than  a  step  in  the  direction  of  its  in- 
stallation. When  this  perception  has  grown  to  a  demand 
that  such  a  system  be  installed,  the  previously  recon- 
structed cash  accounts  must  be  thrown  out  as  a  temporary 
Evidence  of  encumbrance  on  the  foundation  to  be  used 
perception  of  a  for  the  permanent  structure.  To  restate 
the  conclusion:  In  the  absence  of  systems 
of  accoimt  from  which  information  may  be  had  as  to 
revenues,  expenses,  assets,  Habilities,  and  current  surplus 
and  deficit,  the  advantage  of  having  the  best  information 
obtainable  from  books  in  use  makes  it  desirable  that  the 
accounts  kept  be  reduced  to  a  form  of  statement  which 
will  admit  of  mathematical  deductions  as  a  means  of 
approximating  the  conclusions  desired.  In  such  event, 
however,  the  report  of  a  city  may  more  properly  be  pre- 
pared by  a  statistician.  The  work  of  preparing  such  a 
report  is  not  accounting,  the  method  is  not  governed  by 
accounting  principles,  and  the  report  itself  is  not  a  pubh- 
cation  of  accounting  results.  But  in  doing  this  statistical 
work  there  is  a  distinct  administrative  advantage  by  adopt- 
ing a  form  of  statistical  statement  which  will  permit  one  city 
to  compare  administrative  results  with  those  of  another. 


i 

I 

"ill 


An  aid  to 
statistics 


172   REVENUE  AND  EXPENSE  ACCOUNTS 

Recognizing  the  indisposition  on  the  part  of  munici- 
palities to  introduce  complete  systems  of  account,  efiForts 
have  been  made  (notably  by  the  National  Municipal 
League  and  by  the  Bureau  of  the  Census),  to  bring  over 
the  statistical  statements  and  reports  of  receipts  and  dis- 
bursements to  a  form  which  would  admit  of  the  use  of 
the  cash-book  accounts  (actually  kept  by  cities)  to  the 
highest  statistical  administrative  advantage.  The  statis- 
tical method  of  these  two  organizations  is  necessarily 
one  which  would  give  a  imiform  basis  for 
comparison.  The  problems  which  each 
have  had  in  mind  have  been  primarily  those 
of  administrative  economy.  For  this  statistical  purpose 
each  has  carefully  worked  out  the  categories  of  revenues 
and  expenses.  In  applying  these  categories  of  revenues 
and  expenses  to  the  cash-book  as  a  basis  for  their  state- 
ment and  report  of  receipts  and  dishursetnerUs,  they  have 
recognized  that  the  method  adopted  is  an  expedient  — 
calling  attention  to  the  need  which  is  not  supplied  in  the 
accounts,  and  looking  forward  to  a  time  when  a  system 
of  mimicipal  accounts  may  be  installed  which  will  furnish 
an  accurate  statement  of  revenues  and  expenses  without 
the  use  of  this  statistical  expedient.  For  the  work  of  the 
League  and  of  the  Bureau  of  the  Census  nothing  but  the 
highest  commendation  is  to  be  given.  But  the  fact  that 
they  have  employed  a  useful  statistical  expedient,  in  the 
absence  of  proper  systems  of  account,  is  no  reason  why 
accountants  should  employ  the  same  method  in  devising 
accounts  intended  to  remove  the  necessity  for  use  of  this 
statistical  method.  The  accounts  should  close  with  a  state- 
ment of  revenues  and  expenses  direct,  and  give  to  the  sta- 
tistician an  acciirate  summary  of  transactions  representing 
administrative  economy  without  resort  to  mathematical  ap- 
proximations drawn  from  the  transactions  of  the  treasury. 


REVENUE  AND  EXPENSE  ACCOUNTS        173 


IMPORTANCE    OF    THE    DISTINCTION 

For  the  last  two  decades  American  cities  have  been 
struggling  with  the  problem  of  administration,  and  in 
their  struggle  have  been  brought  face  to  face  with  the 
need  for  a  change  in  political  organization  which  will 
remove  the  various  checks  and  balances  heretofore  im- 
posed as  a  means  of  insuring  official  honesty.  It  is  found 
that  integrity  may  be  vouchsafed  through  devices  by 
which  responsibility  may  be  fixed  without  impairing 
administrative  efficiency.  The  demand  of  the  time  is  for 
increased  efficiency,  and  as  a  means  to  this  end  the 
tendency  is  to  centralize  executive  control  in  the  mayor. 
With  the  centralization  of  administrative  responsibihty, 
however,  efficiency  requires  that  a  complete  record  of 
transactions  be  placed  in  the  hands  of  the  mayor.  As  a 
means  of  securing  both  economy  and  fidelity  ^  for  the  en- 
lightenment of  officers  and  for  the  satisfaction  of  citizens 
and  taxpayers,  a  complete  system  of  accounts  is  demanded 
which  shall  be  more  than  a  record  of  receipts  and  dis- 
bursements of  the  treasury  together  with  such  ancillary 
data  as  may  be  collected  by  means  of  statistical  schedules 
and  special  reports.  To  devise  systems  of  municipal 
accounts,  and  to  install  these  for  the  use  of  officers  of 
administration  and  for  the  instruction  of  citizens,  is  the 
Essential  to  work  of  the  public  accountant.  This  work 
administrative  cannot  successfully  be  attempted,  however, 
efficiency  y^^    ignoring    the    fundamental    distinction 

between  revenues  and  expenses  on  the  one  hand  and 
receipts  and  disbursements  on  the  other.  Such  a  confu- 
sion bespeaks  an  utter  disregard  for  the  piu^joses  of 
accounting,  for  the  problems  of  administration  around 
which  accounts  are  to  be  classified  and  coordinated,  and 
for  those  well-established  principles  of  finance  and  admin- 


M 


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174         REVENUE  AND  EXPENSE  ACCOUNTS 

istration  with  which  accounting  results  and  financial 
reports  must  be  harmonized.  It  is  in  this  situation  that 
the  importance  of  such  a  distinction  is  found  and  warrant 
for  the  discussion  of  elementary  principles  at  a  National 
Congress  of  Public  Accountants. 


3h 


N 


CHAPTER  XII 

The  Nomenclature  and  Phraseology  of  Municipal 
Administration  and  Accounts^ 

So  far  as  is  reported,  there  is  only  one  occasion  when 
an  address  on  nomenclature  and  phraseology  would  have 
been  an  attractive  subject  for  popular  presentation  — 
that  was  at  the  building  of  the  Tower  of  Babel.  Times 
have  changed.  With  us  it  is  not  a  corrupt  and  wicked 
generation  that  is  confronted  by  failure  to  make  them- 
selves understood.  The  modern  municipal  grafter  thrives 
best  in  silence  and  in  darkness.  He  desires  no  language 
that  may  leaven  popular  ignorance  as  to  his  doings.  Not 
the  civil  servants  who  have  profited  by  their  own  insolence, 
but  political  masters  with  tongues  confused,  are  seeking 
common  emblems  of  speech. 

Words  are  symbols  —  they  are  artificial  signs  expressing 
ideas.  To  convey  meaning  they  must  be  commonly 
imderstood;  but  a  common  understanding  presumes  com- 
mon ideas  which  may  be  similarly  expressed  in  words. 
Common  ideas,  in  turn,  require  that  subjects  of  thought 
shall  be  analyzed;  and  that  objects  of  thought  shall  be 
commonly  classified.  Finally,  every  classification  which 
takes  hold  on  the  mind  of  man  must  proceed  from  some 
common,  inteUigent  purpose.  For  principles  governing 
common  words,  therefore,  we  must  look  to  common  ideas, 
common  analysis,  conmion  classification,  and,  back  of 

1  Paper  read  before  the  Ninth  Annual  Conference  of  the  National 
Municipal  League  held  at  New  York,  April  25-28,  1905. 

17s 


"t 


IHIi 


i 


■4 


176       PHRASEOLOGY  OF  ADMINISTRATION 

all,  a  common  end  or  human  desire.  An  example:  The 
word  "dog"  will  convey  no  idea,  unless  the  one  using 
the  symbol  and  the  ones  to  whom  it  is  addressed  have  the 
same  mental  picture.  But  the  image  aroused  by  the 
symbol  d-o-g  proceeds  from  a  classification  of  animals 
dependent  on  a  common  analysis  by  which  the  domesti- 
cated canine  is  distinguished  from  his  associates,  cats 
and  fleas.  This  analysis  and  classification  proceeds  from 
a  common,  hmnan  interest  which  requires  that  living  and 
creeping  things  be  so  distinguished  as  to  permit  us  to 
think  about  them  in  a  rational  manner.  We  say  the  dog 
whines,  and  in  using  the  symbol  "whines**  we  presume 
that  all  are  able  to  distinguish  the  class  or  kind  of  vocal 
disturbance  common  to  hungry  dogs. 

Science  is  a  codification  of  exactly  determined  common- 
sense,  i.e,j  common  observation  of  facts,  common  analysis 
Principles  ^^^  common  classification  {)ertaining  to  a 

detennining       single  subject  of  human  interest.    The  end 

scientific  no-  of  science  is  to  establish  conclusions  that 
menclature  ■!  1      •  -1 

may  be  accepted  without  question  for  pur- 
poses of  research  or  instruction.  To  express  these  scien- 
tific observations,  analysis  and  classification  must  be 
accurate,  and  we  must  have  words  that  are  commonly 
understood  and  that  leave  no  room  for  doubt  as  to  the 
object  or  subject  or  class  intended.  Since  science  is  a 
body  of  exact  knowledge,  it  must  have  an  exact  nomencla- 
ture and  phraseology.  Without  a  common  language, 
exact  knowledge  would  be  confined  to  the  observations, 
to  the  analysis  and  to  the  classification  which  each  mdi- 
vidual  makes  for  himself.  Without  exact  symbols  by 
which  we  may  convey  to  others  the  results  of  our  investi- 
gation and  intellectual  labors,  the  human  race  could  never 
rise  above  the  plane  of  the  Bushman  or  the  digger  Indian. 
Intellectual  progress  may  be  said  to  proceed  in  almost 


PHRASEOLOGY  OF  ADMINISTRATION        177 

direct  and  exact  ratio  to  the  precision  with  which  ideas 
and  intellectual  results  may  be  conveyed  through  sym- 
bols. As  each  relation  becomes  established,  this  intelli- 
gence may  be  exactly  expressed  and  conveyed  to  others, 
who,  using  this  as  an  accepted  premise  for  further  thought, 
or  as  a  working  hypothesis  for  further  investigation,  move 
on  in  the  intellectual  procession,  each  estabUshing  a  new 
monument,  or  leaving  a  new  marker  to  guide  others  in 
the  exact  survey  of  the  field. 

All  of  this  is  commonplace  in  the  so-called  exact  sciences. 
Wliat  about  politics  and  economics?  In  neither  of  these 
fields  of  investigation  may  there  be  said  to  be  a  well- 
estabHshed  method  of  analysis,  a  commonly  accepted 
classification,  or  an  incontrovertible  conclusion.  What 
is  the  reason?  There  is  among  poHtical  and  economic 
investigators  a  total  lack  of  system  whereby  a  common 
count  can  be  taken  or  a  consensus  of  judgment  may  be 
obtained.  Private  business,  in  some  respects,  has  been 
fortunate;  for  purposes  of  investigation  and  instruction 
to  those  in  control,  private  business  has  reduced  itself 
more  nearly  to  scientific  standards  than  has  any  depart- 
ment of  economics.  In  this,  however,  the  whole  effort 
of  the  persons  obtaining  exact  knowledge  has  been  to 
preserve  secrecy,  both  as  to  methods  and  as  to  results, 
so  that  the  one  possessing  superior  information  might 
turn  it  to  his  own  advantage,  even  against  his  associates. 
In  a  modern  corporation,  for  example,  the  best  of  methods 
may  be  employed  and  accurate  information  may  be 
brought  together  on  every  subject  and  detail  that  is  of 
interest  to  those  in  control.  In  reporting  this  informa- 
tion only  so  much  is  given  out  as  will  satisfy  the  most 
urgent  demands  of  stockholders  —  the  rest  is  not  told  in 
order  that  the  public  may  be  kept  m  ignorance.  More 
commonly  the  stockholders  themselves  are  compelled 
13 


I! 


li 


178       PHRASEOLOGY  OF  ADMINISTRATION 

to  rely  implicitly  on  the  fidelity  of  their  agents,  they  them- 
selves being  given  practically  no  information  concerning 
any  essential  feature  of  the  business.  Too  often  the  result 
is  that  the  officer  of  the  corporation  having  "inside" 
information  is  turning  this  to  his  personal  account,  while 
the  stockholder  and  other  ** outsiders"  are  left  in  the  blind 
faith  that  all  is  well. 

The  pubhc  administrator  has  not  the  seal  of  secrecy 
placed  on  his  lips.  Every  opportunity  may  be  given  to 
him  who  would  know  the  facts,  provided  he  coUects  this 
information  for  himself.  Yet  so  compHcated  and  so 
numerous  are  the  transactions  of  a  modern  municipality 
that  no  one  person  (even  though  he  give  his  entire  time), 
is  able  to  analyze,  to  classify,  and  to  summarize  them. 
To  act  wisely,  the  head  of  a  municipal  department  must 
have  every  detail  of  service  for  which  he  is  responsible  and 
every  transaction  constantly  before  him;  to  do  this  may 
require  accurate  detailed  daily  reports  from  his  foreman 
and  division  superintendents.  As  a  means  of  making 
these  detailed  reports  useful,  a  staff  of  clerks  must  be 
employed  in  organizing  and  digesting  the  information  as 
received.  By  some  such  system  the  head  of  a  department 
may  intelligently  direct  the  affairs  of  his  own  branch  of 
the  municipal  service.  The  mayor  of  a  city  should  under- 
stand every  transaction  and  every  detail  of  service  in  tdl 
of  the  departments;  more  than  this,  his  judgment  should 
be  quick  and  certain.  With  the  thousands  —  perhaps 
millions  —  of  current  transactions  to  master,  his  control 
must  rest  on  information  accurately  classified,  well  di- 
gested, and  intelligently  summarized,  and  this  should  be 
kept  constantly  within  his  reach.  The  citizen  also  would 
know  every  result  obtained;  besides,  he  would  have  a 
measure  by  which  the  fidelity  and  intelligence  of  each 
officer   and   agent   may   be   determined.    Without   this 


PHRASEOLOGY  OF  ADMINISTRATION        179 

knowledge  he  cannot  vote  inteUigently  or  exercise  judg- 
ment with  respect  to  the  doings  of  his  many  pubHc  ser- 
vants.   In  each  division,  each  department,  and  in  each 
office,  therefore,  a  staff  must  be  kept  constantly  at  work 
arranging  the  facts  of  administration  around  questions 
that  are  to  be  answered  for  the  foreman,  the  division 
head,  the  mayor,  the  citizen.    And  as  a  means  of  inteUi- 
gently reporting  the  answers  to  the  questions,  for  which 
these  facts  have  been  coUected,  analyzed,  classified,  and 
summarized,  it  is  necessary  to  have  words  and  phrases  that 
are  as  exact  in  their  definition  as  are  the  classifications  and 
summaries  established  for  the  purpose  of  collecting  the 
facts.     Such  are  the  principles    and    the    fundamental 
necessities  which  He  back  of  the  need  for  an  exact  "no- 
menclature" and  "phraseology"  m  the  subject  which  has 
come  to  be  one  of  the  keenest  interest  to  every  American 
citizen  —  municipal  administration. 

Answering  its  wider  purpose,  municipal  accounting 
should  be  a  scientific  or  exact  method  or  system  whereby 
aU  of  the  financial  data  pertaining  to  the  management  of 
a  city  may  be  currently  coUected,  analyzed,  classified,  and 
summarized  with  respect  to  problems  of  municipal  admin- 
Relation  of  istration.  Using  the  same  scientific  method, 
accounts  and  the  same  exact  analysis,  the  same  inteUi- 
r^"™on    ^^""^  classification,  and  the  same  purposeful   , 

summaries,  a  department  or  bureau  of 
municipal  statistics  should  Ukewise  coUect  aU  of  the  data  ^ 
pertaining  to  physical  properties  and  municipal  service. 
That  IS,  a  weU-devised  system  of  municipal  accounts  and 
statistics  when  properly  coordinated  should  give  a  direct 
and  accurate  answer  to  every  question  about  which  the 
officer  and  citizen  must  think.  When,  therefore,  a  book- 
keeper says  that  a  layman  is  not  supposed  to  understand 
accounts,  there  is  either  something  the  matter  with  his 


m 


m 


180       PHRASEOLOGY  OF  ADMINISTRATION 

books  or  he  is  seeking  to  cover  his  own  ignorance  by  play- 
ing the  role  of  superior  wisdom.  The  same  may  be  said 
of  an  officer  who  answers  a  demand  for  information  by 
the  excuse  that  he  is  not  called  on  to  enlighten  the  public 
with  respect  to  the  work  of  his  department,  or,  again, 
that  these  are  matters  in  which  the  public  is  not  inter- 
ested. Either  he  himself  is  ignorant  of  the  facts  or  he  is 
not  true  to  his  trust.  More  often  officers  are  ignorant 
than  mendacious.  They  themselves  have  not  the  infor- 
mation to  impart,  and  there  has  no  way  been  provided 
for  ascertaining  the  truth.  A  most  important  acquisition 
to  efiFective  municipal  control  is  a  system  of  intelligence, 
but  before  a  system  may  be  adopted  which  will  supply 
the  information  to  the  ones  desiring  it,  those  devising  the 
system  must  answer  the  two  questions  fundamental  to  the 
classification  of  accoimts  and  statistics,  viz.:  (i)  What 
are  the  problems  of  municipal  management  and  control? 
(2)  What  information  is  necessary  to  their  proper  solu- 
tion? After  these  questions  have  been  answered,  we  may 
then  decide  what  name  we  shall  give  to  each  class  of  facts 
and  to  each  relation  established,  i.e.,  what  shall  be  our 
"nomenclature  and  phraseology." 

In  the  first  place,  a  city  is  a  corporation  owning  property 
and,  as  an  incident  to  performing  its  many  functions, 
incurring  financial  obligations.  Assuming  that  the  prop- 
erties and  financial  obligations  of  the  city  alone  were 
to  be  administered  on  —  that  there  were  no 
problems  pertaining  to  the  various  munici- 
pal fimctions  undertaken  by  the  corpora- 
then  in  this  case  what  would  be  the  questions  of 


Problems  of 
ownership 


tion 


conmion  interest;  what  duties  would  devolve?  on  the  city's 
several  officers  and  agents  in  the  discharge  of  their  re- 
sponsibility with  respect  to  property  and  indebtedness? 
Both  those  in  control  and  the  citizen  body  would  know: 


PHRASEOLOGY  OF  ADMINISTRATION       181 

(i)  the  ability  of  the  corporation  to  meet  its  current  finan- 
cial obligations.    As  a  means  to  this  end  it  would  be  neces- 
sary to  ascertain  (a)  the  resources  available  which  may 
be  or  are  intended  to  be  converted  into  cash  as  a  means 
of  payment,  compared  with  (b)  the  obligations  outstand- 
ing which  have  matured,  or  will  mature,  within  the  next 
fiscal  period,  and  (c)  the  net  amount  of  resources  con- 
vertible and  available  in  excess  of  current  obligations, 
or  the  net  amount  of  current  obligations  in  excess  of 
resources.    (2)  As  a  matter  of  property  administration,  it 
is  also  necessary  to  know  what  properties  or  equipment 
have  been  acquired  and  are  set  aside  to  be  permanently 
or  continuously  used  by  the  municipality,  as  well  as  the 
financial  means  employed  for  procuring  them.    For  this 
purpose  no  question  is  asked  as  to  whether  they  are  salable 
or  unsalable,  or  whether  they  might  be  converted  into 
cash  as  a  means  of  meeting  obligations;  the  point  is  this, 
that  an  accounting  is  to  be  had  and  some  knowledge  is  to 
be  gained  with  respect  to  the  maintenance  and  protection 
of  properties  which  have  been  acquired  and  set  aside  for 
the  continuing  use  of  the  municipality,  and  which  are  not 
intended  for  conversion.    An  exact  knowledge  should  also 
be  had  with  respect  to  the  protection  of  the  capital  funds 
provided  for  this  purpose  against  misuse  or  misappro- 
priation, as  distinguished  from  the  funds  or  cash  available 
to  meet  current  expenses  and  liabilities.     (3)  The  officer 
and  the  citizen  would  know  what  amount  of  the  permanent 
properties  and  equipment  has  been  procured  from  revenue 
sources  (the  invested  revenue  surplus),  and  m  what  man- 
ner these  funds  have  been  appHed,  i.e.,  whether  they  have 
been  directly  appropriated  to  the  purchase  of  properties, 
are  held  in  reserve  funds,  or  have  been  applied  to  the 
payment  of  past  obligations  incurred  as  a  means  of  pro- 
curing properties  and  equipment.     (4)  There  should  like- 


ISSt       PHRASEOLOGY  OF  ADMINISTRATION 

wise  be  exact  knowledge  as  to  the  current  increases  or 
decreases  in  the  several  classes  of  properties  that  are  in- 
tended for  continuous  or  permanent  use,  as  well  as  the 
increase  and  decrease  in  the  several  classes  of  resources 
intended  for  conversion  into  cash,  and  for  payment  of 
current  obligations.  (5)  For  purposes  of  administrative 
control,  as  well  as  for  public  protection,  each  citizen 
and  ofl&cer  should  know  something  about  the  fidelity  or 
infidelity  of  those  servants  entrusted  with  public  property 
or  funds,  for  which  they  have  been  made  responsible. 

In  the  second  place,  citizens  have  organized  themselves 
into  a  corporate  body  for  the  purpose  of  doing  certain 
Problems  of  things,  or  exercising  certain  powers  in  the 
municipal  interest  of  public  welfare,  which  they  could 

operation  ^^^  ^^^  ^^  ^^  ^^  ^^^^  .^  ^^^^  individual  or 

private  capacity.  But  as  a  corporation  they  cannot  act 
except  through  officers  and  agents.  Looking  toward 
questions  of  welfare  and  public  service,  therefore,  it  is 
necessary  and  proper  not  only  that  the  officers  who  are 
charged  with  this  trust,  but  also  that  citizens  should  know : 
(i)  The  amount  and  character  of  service  rendered  by 
each  department  or  division  of  the  municipality;  (2)  the 
total  cost  of  each  class  of  service  rendered,  or  of  each 
function  performed;  (3)  the  different  current  revenue 
provisions  that  have  been  made  for  meeting  this  cost,  and 
the  total  amount  that  has  been  derived  from  each  source; 
(4)  whether  the  current  revenue  provisions  have  been 
sufficient  to  cover  the  current  cost  and  the  amount  of 
excess  of  revenue  over  expenses,  or  of  expenses  over 
revenue;  (5)  the  relation  of  cost  to  service  rendered  as  a 
means  of  determining  questions  of  economy;  (6)  the 
different  kinds,  and  the  amount  of  each  kind  of  financial 
loss  or  gain  during  the  period  reported  on,  and  under 
review;    (7)  the  distribution  that  has  been  made  of  any 


PHRASEOLOGY  OF  ADMINISTRATION        18S 

surplus  as  well  as  the  adjustment  made  as  a  means  of 
meeting  any  deficit  that  has  occurred  during  the  period. 

In  the  third  place,  as  the  corporate  representative  of 
pubUc  welfare,  the  city  is  empowered  to  undertake  and, 
on  occasion,  to  accept  certain  trust  or  agencies.  The 
Problems  of  officer  in  control,  as  well  as  the  citizen, 
immicipai  should  know  (i)  the  condition  of  each  trust 

*™**  and  agency  fund  or  estate;    (2)  the  fidelity 

of  the  city  in  all  of  its  transactions  with  respect  to  the 
administration  of  these  funds  or  estates;  (3)  the  fidelity 
of  the  officer  and  agent  of  the  city  (that  is,  of  its  public 
servants)  in  deaUng  with  those  funds  or  properties  for 
which  each  is  responsible. 

Such,  in  general,  are  the  problems  concerning  which  we 
should  have  full,  direct,  and  accurate  answers.  The  meas- 
ure of  responsibility  placed  on  the  citizen,  as  well  as  the 
officer  in  control,  should  be  nothing  less  than  a  complete 
knowledge  concernmg,  and  a  complete  report  on,  each  of 
these  relations.  We  come  now  to  the  second  premise,  the 
classification  of  the  data  required  for  the  exercise  of  intelli- 
gent judgment  concerning  the  several  problems  suggested. 

While  it  is  not  intended  at  this  time  to  go  into  the 
detailed  accounts  or  classes  of  financial  or  physical  facts, 
above  suggested,  as  a  matter  of  gaining  a  comprehensive 
Information  ^^owledge  of  the  current  financial  resources 
required  to  ^^^  obUgations,  it  is  necessary  at  least  to 
determine  abU-  know  of  what  these  Several  resources  and 
Sal^ciTobii-  ^l^^g^tio^s  consist.  Information  of  this 
gations  ^nd    should   have   a   classification   which 

would  indicate  the  cash  or  current  funds  on 
hand,  whether  the  convertible  resources  are  in  the  nature 
of  revenues  receivable,  credit  contracts  receivable,  judg- 
ments receivable,  etc.,  as  all  of  these  several  classes  of 
current  resources  are  governed  by  different  laws  and 


I 


184        PHRASEOLOGY  OF  ADMINISTRATION 

require  a  different  character  of  treatment  in  order  to  deter- 
mine their  availability  or  to  convert  them  into  cash.  For 
the  same  reason  it  is  advantageous  to  know  the  different 
classes  of  obUgations  to  be  met,  whether  they  are  past  due 
or  maturing,  as  well  as  the  accruing  HabiUties  thereon  under 
contracts  for  payment  of  interest,  etc.  In  collecting  the 
facts  they  should  be  classified,  and  finally  summarized  under 
these  important  divisions;  and  the  classification  should,  at 
all  times,  go  as  far  as  may  be  necessary  to  facilitate  thought 
and  to  increase  efficiency  of  official  control. 

In  collecting  the  data  pertaining  to  properties  that  are 
set  aside  for  permanent  or  continuous  use,  another  class 

Information  ^^  judgments  is  to  be  satisfied.  The  ad- 
necessary  to  the  ministrative  problem  is  one  of  protection 
preservation  of  qj^^  preservation  of  the  properties;  it  has 
p  pe  les  nothing  to  do  with  conversion.    Therefore, 

the  data  must  be  so  classified  and  summarized,  that  is, 
such  detailed  accounts  should  be  kept,  that  the  one  in 
control  may  know  whether  the  properties  are  being  kept 
up,  how  much  is  being  spent  for  repairs  and  replacements, 
what  is  being  done  to  prevent  depreciation,  or  if  the  repairs 
and  replacements  have  not  been  adequate  to  maintain  the 
property,  what  amount  it  would  cost  so  to  rej)lace  them, 
—  in  other  words,  the  amount  of  the  depreciation.  In 
classifying  these  facts,  it  is  necessary  to  sharply  distinguish 
between  the  data  obtained  as  a  means  of  securing  exact 
knowledge  concerning  the  preservation  and  j^rotection  of 
properties  on  the  one  hand,  and  that  giving  the  additions 
or  betterments  to  the  municipal  plant  on  the  other. 

Going  to  another  class  of  problems,  namely,  those  hav- 
ing to  do  with  cost  of  service  rendered  and  provision  made 
for  meeting  cost!  For  the  solution  of  all  questions  of 
economy  and  for  all  tests  of  efficiency,  we  must  have  the 
financial  information  so  classified  that  the  results  in  units 


PHRASEOLOGY  OF  ADMINISTRATION        185 


Data  pertain- 
ing to  munic- 
ipal economy 
and  official 
control 


of  cost  may  be  compared  with  units  of  service.  It  should 
be  known  what  amount  is  spent  for  salaries, 
for  rents,  for  heat,  for  light,  for  supplies,  etc., 
that  the  amount  paid  for  each  of  these  may 
be  reduced  to  standards  of  economy.  Every 
element  that  enters  into  and  becomes  a  part 
of  the  problem  of  economy  of  administration  should  be 
made  separate,  and  a  distinct  subject  for  inquiry.  The 
same  principles  should  also  govern  statistics,  by  which  it 
is  attempted  to  measure  the  amount  of  service  that  has 
been  rendered  at  a  given  cost  and  the  physical  wear  and 
tear  incident  thereto. 

About  two  years  ago  the  League  Committee  on  Munici- 
pal Accoimts  and  Statistics  undertook  to  work  out  the 
foundation  for  the  classification  of  accounts.  Its  first 
labors  were  directed  toward  the  question  of.  What  in- 
formation is  desired  ?  This  result  having  been  formulated, 
it  next  proceeded  to  the  problem  of  Classification  of 
financial  and  statistical  data,  which  would  furnish  this 
information  desired  as  a  matter  of  current  account.  These 
Romenciature  Schedules  Were  gone  over  by  the  committee 
and  phraseoi-  as  a  whole,  and  having  been  tentatively 
°*^  adopted  were  referred  to  a  sub-conmiittee 

to  work  out  a  nanienclature  and  phraseology  that  might  be 
adopted  as  a  part  of  the  general  report.  Within  a  short 
time,  it  is  hoped,  a  compendium  of  terms  may  be  laid  before 
the  general  committee.  Without  assuming  to  set  forth 
results  in  detail  or  to  make  a  report  for  the  committee  as  a 
whole,  this  is  offered  simply  as  an  expos^  of  the  principles 
that  have  governed  its  action,  and  to  explain  the  method 
of  procedure  by  which  conclusions  will  be  reached.* 

>The  sub-committee  appointed  were:  Dr.  Hartwell,  Mr.  Le  Grand 
Powers,  and  the  writer.  Mr.  Powers  has  since  published  an  elaborate 
report  on  nomenclature  in  Bulletin  50  of  the  Bureau  of  Census. 


REASONABLE  UNIFORMITY  IN  ACCOUNTS    187 


!(;* 


:iii' 


^ 


CHAPTER  XIII 

What  Constitutes  Reasonable  Uniformity  in 
Municipal  Accounts  and  Reports* 

The  administrative  functions  undertaken  by  municipal 
corporations  are  of  three  general  classes,  viz. :  (i)  Those 
Common  exercised  in  the  interest  of  established  order 

functions  and  social  necessity;    (2)  those  which  per- 

m^^aUttes^  tain  to  social  betterment  or  social  elevation; 
mumcip     les     ^^^  ^^^  ^^^^  which  have  to  do  with  social 

economy.  Welfare,  therefore,  as  comprehended  within 
the  meaning  of  modem  municipal  citizenship,  and  as 
conserved  by  municipal  administration,  must  include  all 
of  these  institutional  purposes  and  activities. 

A  corporation  is  a  lifeless,  bloodless  fiction.  It  is  a 
legal  person  of  sovereign  powers  —  without  the  ability, 
however,  to  exercise  these  powers  except  through  living 
human  agents.  Moreover,  these  Hving  corporate  agents 
are  competent  to  exercise  such  f)owers  only  as  are  granted; 
and  again,  they  are  able  to  perform  the  functions 
granted  only  when  provided  with  physical  equif)ment 
suited  to  the  accomplishment  of  the  corporate  ends.  It 
is  in  this  situation  that  the  advantage  of  corporate  politi- 
Common  cor-  cal  organization  lies.  The  political  powers 
poratc  safe-  of  government  (those  which  pertam  to  the 
^'^^  form  of  corporate  organization,  and  to  the 

exercise  of  other  electoral  functions)  are   retained  within 

» Paper  read  before  the  Conference  of  the  National  Municipal  League 
at  Chicago,  April  28,  1904. 

186 


Uniformity  in 
form  of  cor- 
porate organ- 
ization of 
municipalities 


the  direct  or  indirect  control  of  the  people  whose  welfare 
the  corporation  is  to  serve;  the  active  administration oi  the 
aflFairs  of  the  corporation  is  left  to  agents  thus  selected 
or  appointed,  with  authority  to  direct  its  functions  and  to 
enforce  its  rights. 

To  become  effective  as  a  public  corporation,  the  ser- 
vice of  a  municipality  {i.e.,  the  living  agents  into  whose 
hands  the  corporate  powers  and  physical 
equipment  are  placed)  must  be  organized 
around  the  functions  undertaken.  And  the 
community  interests  of  one  poHtically  organ- 
ized legal  society  being  similar  to  the  com- 
munity interests  of  another,  the  functions  to  be  performed 
by  the  corporation  organized  to  serve  these  interests  are 
similar;  for  the  same  reason  the  structural  and  legal  form 
of  municipal  governments  bear  a  close  resemblance. 

Common  provisions  for  the  exercise  of  political  functions 
are  found  in  constitutional  and  legal  enactments  for  "  the 
election  and  appointment  of  officers."  Common  pro- 
visions for  the  exercise  of  administraiive  functions  are 
found  in  the  creation  of  departments  and  bureaus.  Dis- 
tributing the  various  political  offices  and  the  several 
bureaus  and  departments  of  corporate  activity  in  such 
manner  that  they  may  be  shown  in  relation  to  the  com- 
mon fimctions  exercised,  an  outline  classification  would 
appear  as  follows: 

I.  General  Organization: 

1.  For  Elections  and  Appointments. 

2.  For  General  Officers  and  Offices, 
(i)  Mayor. 

(2)  Council. 

(3)  Municipal  Courts. 

(4)  Law  officers. 


i 


«f 


iil 


il 


.     lU 


188    REASONABLE  UNIFORMITY  IN  ACCOUNTS 

(5)  Finance  officers. 

(6)  City  Hall  and  general  offices. 

(7)  Department  of  public  supplies. 

(8)  Public  printing. 

(9)  Miscellaneous. 

n.  Departmental  Organization: 

I.  For  the  Maintenance  of  Order  and  Providing 
Social  Necessities. 
(i)  Protection  of  life,  health  and  property, 
(i)  Police  department. 

(2)  Fire  department. 

(3)  Fire  and  police  telegraph. 

(4)  Public  pounds. 

(5)  Bureaus  of  inspection. 
{a)  Building  inspection. 

(6)  Tenement  house  inspection, 
(c)  Weights  and  measures. 
id)  Fuel  inspection. 
»  {e)  Others. 

(6)  Militia  and  armories. 

(7)  Health  department. 

(8)  Insane  hospital. 

(9)  Cemeteries  and  crematories. 

(10)  Homes  for  the  aged. 

(11)  Orphan  homes. 

(12)  Institutions  for  defective  youths. 

(13)  Public  lodging  houses. 

(14)  Outdoor  reUef. 

(15)  Prisons  and  reformatories. 

(16)  Workhouses. 

(2)  Public  highways  and  sewers. 

(i)  Building  and  maintenance  of  free  bridges. 


REASONABLE  UNIFORMITY  IN  ACCOUNTS    189 

(2)  Opening  and  grading  of  streets. 

(3)  Maintenance  and  repair  of  streets. 

(4)  Maintenance  and  repair  of  sidewalks. 

(5)  Street  Ughting. 

(6)  Street  cleaning. 

(7)  Snow  removal. 

(8)  Street  sprinkling. 

(9)  Refuse  collection  and  disposal. 
(10)  Sewers  and  sewage  disposal. 

2.  For  Social  Betterment, 
(i)  Public  Education. 

(i)  Elementary  schools, 
(a)  Kindergartens. 
{b)  Grade  schools, 
(c)  Trade  schools. 
{d)  Special    courses 
struction. 

(2)  Schools  of  higher  instruction, 
(a)  High  schools. 

ip)  Training  schools, 
(c)  City  colleges. 

(3)  Miscellaneous. 
{a)  Free  lectures. 

Q))  Other  educational  services. 

(2)  Public  Ubraries,  art  galleries,  and  museums, 
(i)  Public  libraries. 

(2)  Public  art  galleries. 

(3)  PubUc  museums. 

(4)  Public  aquariums. 

(5)  Zoological  gardens. 

(3)  Public  recreation, 
(i)  Public  parks. 


of   elementary    in- 


190    REASONABLE  UNIFORMITY  IN  ACCOUNTS 

(2)  Public  playgrounds  and  gymnasiums. 

(3)  Public  baths. 

(4)  Public  celebrations. 

3.  For  Social  Economy, 
(i)  Municipal  Industries, 
(i)  Water  works. 

(2)  Gas  works. 

(3)  Electric  light  plants. 

(4)  Municipal  heating. 

(5)  Street  railways. 

(6)  Municipal  subways. 

(7)  Municipal  conduits. 

(8)  Municipal  markets. 

(9)  Municipal  docks  and  warehouses. 

(10)  Municipal  ferries. 

(11)  Municipal  toll  bridges. 

(12)  Municipal  ice  plants. 
(2)  Municipal  Investments. 

(i)  Real  estate. 

(2)  Stocks  and  bonds. 

(3)  Other  investments. 

In  none  of  the  cities  do  we  have  all  of  the  departments 
of  service  above  shown;  but  in  all  of  them,  in  so  far  as  the 
service  is  organized,  the  relations  indicated  are  present. 
From  the  point  of  view  of  functions  undertaken  and 
of  organic  provisions  made  to  perform  these  functions, 
therefore,  a  common  basis  for  classification  is  found. 
With  this  all  the  data  pertaining  to  either  the  political 
or  administrative  activities  must  be  associated. 

The  form  and  classification  of  accounts  are  necessarily 
determined  by  the  form  and  purpose  of  organization. 
Municipal  administration  is  largely  a  matter  of  business. 


REASONABLE  UNIFORMITY  IN  ACCOUNTS    191 

In  a  free  society  the  services  employed  by  a  public  cor- 
poration must  be  voluntary  and,  therefore,  a  subject  of 
contract  —  i,e.,  one  of  offer  and  acceptance.  In  most 
of  its  aspects  the  exercise  of  administrative  powers  rests 
on  bargain  and  sale,  while  even  in  its  political  and  govern- 
ing  fimctions  the  corporation  must  have 
cias8ifi«itto/  financial  support.  The  character  and  ef- 
ficiency of  administration  must  in  a  large 
measure  depend  on  the  character  of  business  judgment 
exercised  by  those  in  administrative  control;  in  an  insti- 
tution having  such  variety  of  transactions  and  such 
complexity  of  organization  (one  whose  business  in  the 
aggregate  amounts  to  many  thousands  or  even  millions  of 
dollars),  the  exercise  of  sound  official  discretion  depends 
on  a  system  of  financial  account  and  statistical  report 
which  will  not  only  record  each  transaction  in  its  proi>er 
administrative  relation,  but  which  wiU  also  reflect,  in 
properly  classified  summaries,  the  net  administrative 
results. 

Mimicipal  accoimting  has  been  defined  as  a  method 
employed  by  a  city  for  the  purpose  of  recording  its 
business  transactions,  and  finally  coordinating  these  data 
around  problems  of  administration.  A  system  of  accounts 
employed  by  a  city,  if  true  to  this  purpose,  must,  like  the 
administrative  service  itself,  take  its  form  and  character 
from  the  form  and  character  of  corporate  functions  exer- 
cised. The  same  is  true  of  statistical  reports.  As  a 
principle  of  uniform  classification  in  municipal  accounts 
and  reports,  this  is  not  stated  as  a  possibility  but  as  an 
administrative  necessity.  Such  uniformity  as  is  found  in 
the  functions  undertaken  by  the  various  municipalities, 
and  such  as  is  reflected  in  conmion  forms  of  organization, 
require  that  the  general  categories  for  the  final  smnmaries 
of  account  and  statistical  report  in  one  city  be  similar  to 


I 


■I  I 


192    REASONABLE  UNIFORMITY  IN  ACCOUNTS 

those  of  another.  This  is  the  assumption  which  lies  at 
the  foundation  of  the  work  of  the  Committee  of  Uniform 
Mimicipal  Accounts  and  Statistics  of  the  National 
Mimicipal  League. 

Proceeding    from  this  assumption,  the  committee  of 

the  league  on  uniform  municipal  accounts  and  statistics 

has,  till  recently,  turned  its  energies  entirely  toward  the 

discovery  of  those  functions  and  forms  of 

Schedules  of      organization  that  are  common  to  munici- 

the  committees        °.  .  „  .  ,  ,         i 

pahties.     For  guidance  they  have  gone  to 

the  charters  and  organic  laws;  they  have  also  availed 
themselves  of  the  results  of  research  of  poUtical  scientists, 
and  of  the  experience  of  professional  accountants  and 
officers  of  municipal  control.  Each  result  has  thus  been 
brought  to  a  critical  test.  So  useful  were  the  schedules  of 
classification  thus  formulated,  that,  from  the  date  of  their 
first  pubHcation,  they  have  been  utiUzed  by  cities  attempt- 
ing to  restate  their  reports.  In  fact,  the  progress  of  the 
work  of  the  committee  may  be  traced  in  the  new  classi- 
fication from  time  to  time  adopted  by  municipalities. 
To-day  there  are  no  less  than  eighty  cities  whose  financial 
statements  bear  the  stamp  of  the  work  of  the  league;  and 
the  United  States  Census  ofiicers  have  made  use  of  them 
in  the  collection  and  classification  of  municii)al  statistics. 
At  the  last  conference  of  the  league  it  was  thought  the 
success  of  this  part  of  the  work  of  the  committee  war- 
ranted an  enlargement  of  the  scope  of  their  labor.  The 
committee  was  therefore  continued  and  instructed  to 
report  in  outline  a  complete  system  of  mimicipal  accounts 
and  reports. 

It  is  to  be  held  in  mind  that  up  to  this  time  no  attempt 
had  been  made  by  the  committee  to  apply  its  classifica- 
tion to  any  part  of  the  accounts  of  a  city,  nor  to  any  part 
of  a  municipal  report  except  to  "Receipts  and  Disburse- 


REASONABLE  UNIFORMITY  IN  ACCOUNTS    1»S 


ments."  And  the  use  that  had  been  made  of  the  schedules 
by  the  cities  themselves  had  largely  been  under  the  same 
Hmitation.  Till  the  time  of  the  last  annual  conference 
of  the  league  only  three  cities  had  adopted  complete 
systems  of  accounts,  in  which  attempt  was  made  to  apply 
the  classification  of  the  league,  and  two  of  these  systems 
were  then  in  process  of  installation.  Chicago  was  the 
only  city  that  had  made  a  report  after  having  adopted 
such  a  system  of  accounts.  In  this  (the  comptroller's 
report  for  1902),  the  appHcation  made  of  the  schedules 
had  been  to  Revenues  and  Expenses  of  the  city,  instead 
of  the  transactions  of  the  treasury  (i.e.,  to  Receipts  and 
Disbursements).  Thus,  as  before,  the  "larger  work"  to 
be  imdertaken  by  the  committee  was  in  the  nature  of 
pioneering. 

To  answer  the  specification  of  "completeness"  the 
committee  must  outHne  a  plan  by  which  all  of  the  trans- 
actions pertaining  to  municipal  activity  may  be  classified 
The  larger  —  i-Cy  it  must  not  only  include  the  trans- 
work  of  the  actions  of  the  treasury  and  mark  the  flow 
of  cash,  but  it  must  also  take  into  account 
the  transactions  and  the  properties  pertaining  to  every 
other  department  and  municipal  relation.  The  success 
of  the  committee  in  introducing  a  "uniform"  system  must 
depend  on  the  adoption  of  a  classification  of  detailed 
accounts  from  which  the  central  controlling  officers  may 
bring  the  work  of  the  bureaus  and  departments  into  rela- 
tion with  the  common  problems  of  municipal  adminis- 
tration, and  which  in  turn  might  be  used  as  a  basis  for 
financial  report.  To  accompUsh  such  a  task,  to  devise 
schedules  which  may  be  acceptable  and  serve  as  a 
basis  for  uniform  accounting,  is  an  undertaking  that  will 
require  years  of  continuous  effort  and  must  reflect  the 
technical  knowledge  and  experience  of  a  large  community 
14 


I 


I      (! 


194     REASONABLE   UNIFORMITY  IN   ACCOUNTS 

in  interest.  The  service  which  the  committee  hopes  to 
render  is  the  one  of  bringing  this  knowledge  and  experi- 
ence together  and  of  expressing  it  in  intelligible  form. 

The  initial  work  of  the  committee  was  to  obtain  a 
formulation  which  might  serve  as  a  working  hypothesis 
for  discussion  and  by  means  of  which  this  experience  might 
be  drawn  out  in  conference.  The  scope  of  the  com- 
mittee's investigation  was  to  include  the  physical  and 
operative  statistics  of  cities,  as  well  as  their  financial 
accounts  and  reports.  At  the  first  meeting  held,  the  first 
draft  of  that  part  of  the  programme  which  pertained  to  sta- 
tistics was  assigned  to  the  chairman  and  the  preliminary 
draft  on  the  outline  of  accounts  and  financial  reports  was 
assigned  to  the  secretary.  This  draft  was  formulated 
and  submitted  to  the  committee  February,  1904,  and 
tentatively  adopted,  but  no  final  action  was  taken.  It 
was  this  draft  that  was  placed  in  the  hands  of  Mr.  LeGrand 
Powers,  of  the  bureau  of  census. 

The  application  of  schedules  of  uniform  classification 
to  a  complete  system  of  accoimts,  and  finally  the  evolu- 
tion and  statement  of  principles  of  uniformity,  require 
that  we  first  ascertain  the  categories  of  classification  com- 
mon to  municipal  accoimting.    Accounts  being  devised 
as  an  aid  to  clear  thinking  about  the  affairs  of  a  city,  the 
discernible  imiformity  that  may  exist  must  have  refer- 
ence to  the  elements  of  common  interest  in  administration. 
As  before  suggested,  we  have  to  deal  with  a  corpora- 
tion —  a  legal  entity  with  sovereign  powers  and  proprie- 
tary rights,  the  purpose  of  whose  creation  is  to  render 
Uniformity  in     service  to  the  commimity,  but  which  can 
principles  of       exercise  powers  only  through  officers  and 
mccounting         agents  equipped  with  the  physical  means 
necessary   to   make   them   effective.    This  corporation, 
therefore,  so  far  as  its  business  is  concerned,  has  two 


REASONABLE  UNIFORMITY  IN  ACCOUNTS    195 

distinct  relations,  the  one  being  with  respect  to  its  own 
proprietorship  (its  assets  and  its  liabilities),  the  other 
bemg  the  business  aspect  of  its  operations  (the  corporate 
income  and  expenses). 

Reflecting  these  two  relations  there  have  grown  up 
two  distinct  systems  of  account,  either  of  which  may  be 
used  and  either  of  which  may  be  complete.    The  most 
primitive  of  these  is  what  is  known  as  a  single-entry 
system;  it  attempts  to  exhibit  in  form  of  final  statement 
one  relation  only  —  that  of  asset  and  liability.    That  is 
m  a  single-entry  system  of  account,  its  final  summaries 
are  set  up  m  what  is  known  as  a  balance  sheet,  or  an 
exhibit  of  present  proprietary  conditions;  m  its  final  state- 
ment it  attempts  to  give  an  instantaneous  photograph 
of  properties  and  financial  obligations  of  the  cities.    The 
other,  known  as  the  double-entry  system,  attempts  not 
only  to  state  relations  of  asset  and  Uability,  but  also  to 
give  a  classified  summary  of  operations.    In  this  a  finan- 
cial biograph  is  given  of  the  fiscal  period;  also  an  instan- 
taneous photograph  of  conditions  at  its  close.    Before  we 
attempt  to  outHne  a  scheme  of  uniformity  of  accounting, 
therefore,  it  is  necessary  to  decide  as  to  which  of  these 
two  systems  of  account  wiU  be  used.     And  this  in  turn 
must  again  be  decided  by  appeal  to  corporate  purposes. 
What   are    the    administrative    interests   common   to 
municipaUties?       Are    statements    reflecting    corporate 
conditions  in    terms  of   asset   and    liabiHty   sufficient^ 
What  are  the  problems  about  which  both  electors  and 
responsible  municipal  officers  must  exercise  discretion? 
Administrative    Generally  speaking,  there  are   two  classes 
problems  com-   of   administrative   problems    pertaining    to 
ScJlTitlL''"       ^]'^  management  of  every  pubUc  corpora- 
tion:   (i)  The  citizen,  in  his  judgment  of 
tne   administration,   and   the  controlling  officer    in   the 


i 


196    REASONABLE  UNIFORMITY  IN  ACCOUNTS 

performance  of  his  duty,  wish  to  know  whether  or  not 
the  corporation,  as  an  agent  of  general  welfare,  has 
rendered  the  best  service  of  which  it  is  capable  at  the 
least  cost;  (2)  and,  as  a  corporation  necessarily  owning 
properties  and  intrusting  its  funds  and  equipment  to 
officers  and  agents,  all  parties  in  interest  desire  to 
know  whether  or  not  this  proprietorship  has  been 
protected  against  misuse  and  infidehty.  To  supply 
the  data  essential  to  intelligent  judgment,  a  complete 
double-entry  system  of  accounts  is  requisite. 

From  this  we  may  proceed  to  a  consideration  of  the 
essentials  common  to  accounts.  Accounts  being  a  method 
of  collecting,  classifying,  and  coordmating  business  data, 
Essentials  com-  we  look  to  the  adequacy  of  means.  A 
montoac-  complete  system  would  require  that  every 
counts  transaction  be  recorded.    This  should  be 

done  by  the  person  in  charge  if  possible,  at  least  by  the 
bureau  or  department  in  which  the  transaction  arises. 
In  a  large  city,  however,  chronological  record  of  events 
kept  in  each  department  could  be  of  little  use  to  any  one. 
To  utilize  this  unclassified  historical  record  and  adapt 
it  to  the  purposes  of  control,  the  various  transactions  must 
be  classified,  and  this  having  been  done  th(7  must  then 
be  brought  into  statements  of  final  account  prepared  for 
a  central  office.  Both  the  ''original  entry"  and  the  first 
" classification"  may  take  place  m  the  department.  From 
this  the  classified  result  is  rejx)rted  to  the  central  office  — 
the  items  contained  in  this  report  must  be  ''posted"  to 
the  central  or  controUing  accounts.  The  classification  of 
"controlling  accounts"  therefore  must  determine  that  of 
the  "detailed  account"  of  the  transactions  in  the  depart- 
ments. 

We  now  come  to  the  classification  of  the  "controlling 
accounts."    These  being  organized  around  the  two  gen- 


REASONABLE  UNIFORMITY  IN  ACCOUNTS    197 

eral  administrative  categories  (viz. :  "municipal  economy" 
and  "municipal  proprietorship") ;  within  these  two  general 
categories  there  are  also  some  common  interests  which 
require  uniformity  in  statement.  The  relations  of  economy 
are  determined  (i)  by  comparison  of  expenses  with  the 
statistics  of  service  performed.  This  not  only  introduces 
us  into  the  categories  of  expense  and  income,  but  also  in 
the  other  branch  of  the  committee's  investigation,  viz., 
physical  and  operative  statistics. 

Confining  ourselves  to  the  accounting  side  of  the  prob- 
lem, all  cities  derive  their  mcome  for  the  support  of  govern- 
ment from  about  the  same  sources,  viz.,  from  taxes, 
licenses,  and  miscellaneous  fees  of  departments,  etc. 
Common  cias-  Organizing  accounts  of  income  accruing 
sification  of  for  the  use  of  a  city  during  a  fiscal  period 
according  to  sources,  we  have  a  common 
basis  for  the  classification  of  revenues. 
Statements  of  taxes  are  taken  from  the  tax  levies;  licenses 
maybe  taken  from  Ucense  registers;  and  the  miscellaneous 
fees,  etc.,  are  reported  from  the  several  bureaus  and  de- 
partments. For  the  statement  of  miscellaneous  revenues, 
the  schedules  of  the  league  would  form  a  common  basis 
for  classification.  The  expenses  are  also  recorded  in  the 
office  of  the  comptroller  in  the  form  of  expense  vouchers, 
etc.,  or  are  reported  from  the  department.  Here  again 
the  schedules  of  the  league,  based  on  administrative 
relations  common  to  municipalities,  may  serve  as  a  guide; 
and  such  a  classification  would  be  of  the  highest  utility. 
It  may  be  said  it  is  absolutely  necessary  in  getting  at 
relations  of  economy  of  admmistration  when  reduced  to 
cost  of  units  of  service  by  comparison  with  the  operative 
statistics. 

One  of  the  most  important  proprietary  relations  of  a 
public  corporation,  and  one  which  involves  a  problem 


income  and 
expenses 


Mi 


f 


198    REASONABLE  UNIFORMITY  IN  ACCOUNTS 


tl 


II 

1 


4 


Common  basis 
for  classifica- 
tion of  asset 
and  liabUity 
accounts 


most  serious  to  the  officer  as  well  as  the  citizen,  is  that 
of  ability  of  the  government  to  meet  its  ma- 
turing obligations.  A  proper  accounting  of 
this  relation  requires  a  classification  of  assets 
and  liabilities  in  such  manner  that  the  prop- 
erties intended  as  equipment,  or  for  continued 
use  in  the  business,  may  be  segregated  and  set  apart  from 
assets  to  which  the  city  may  look  as  a  means  of  payment. 
Quite  as  important  also  is  classification  of  liabihties  in 
such  a  manner  that  the  current  or  maturing  liabilities 
may  be  distinguished  from  those  long-time  obhgations  that 
are  not  a  current  charge.  These  relations  having  been 
set  up,  judgment  as  to  the  ability  of  the  government  to 
meet  its  maturing  obligations  requires  that  the  current  Ua- 
bilities  be  compared  with  the  assets  available  to  meet  them. 
The  classification  of  the  current  asset  and  liabiUty  accounts 
should  be  similar  in  the  accounts  of  cities  for  the  reason 
that  the  assets  are  derived  from  similar  sources,  and  the 
contractual  and  legal  liabilities  are  similar  in  kind.  If 
such  comparisons  are  to  be  made,  therefore,  there  must  be 
uniformity  in  the  general  controlling  accounts  of  current 
asset  and  liability. 

The  long-time  liabilities  are  usually  incurred  for  pur- 
pose of  equipment  or  permanent  improvement.  The 
general  classification  of  equipment  used  by  the  cities 
being  the  same,  uniformity  in  the  controlling  accounts 
of  both  bonded  debt  and  of  the  permanent  asset  accounts 
follows  —  and  in  the  schedules  of  the  league  may  be 
found  a  common  outline  as  well  as  a  common  nomen- 
clature. In  conclusion  it  may  be  said  that  whatever  be 
the  difference  in  forms  of  records  used  for  **  original 
entries"  of  transactions  in  the  various  bureaus  and 
departments,  common  administrative  interests  and  pur- 
poses of  control  would  suggest  a  common  classification 


Departmental 
accounts 
showing  rela- 
tions  of 
fidelity 


REASONABLE  UNIFORMITY  IN  ACCOUNTS    199 

of  the  general  controlling  accounts  of  municipalities.  Not 
primarily  as  a  means  of  bringing  the  records  of  one  city 
into  comparison  with  those  of  another,  but  as  an  essentiad 
to  enlightened  conduct  of  its  own  affairs. 

We  turn  now  to  the  accounts  of  special  officers  and 
departments,  in  which  the  prime  purpose  is  to  insure 
fidelity.  Aside  from  the  fact  that  a  depart- 
ment record  is  an  integral  part  of  a  general 
system  and  for  this  reason  the  truth  of 
departmental  records  is  essential  to  intel- 
ligent controlling  summaries,  the  officer 
entrusted  with  properties  or  funds  must  also  render  an 
account  of  his  stewardship.  One  of  the  most  important 
of  these  departmental  records  reflecting  relations  of 
fidelity  is  that  of  the  municipal  treasury.  So  far  as  the 
general  asset  and  liability  statement  is  concerned,  no 
return  is  needed  except  that  of  "balances  on  hand";  to 
this  end  no  classification  is  necessary  except  that  the 
"current  cash"  be  returned  separate  from  the  "cash 
obtained  from  bond  sales  for  permanent  improvements," 
etc.  But  from  the  point  of  view  of  official  fidelity,  a 
statement  of  "receipts"  and  "disbursements"  should 
be  made  which  will  reflect  the  transactions  pertaining 
to  and  the  final  condition  of  each  fund  kept. 

In  this  I  am  somewhat  at  variance  with  those  who  have 
attempted  to  use  the  cash-book  as  the  central  record  of 
municipal  account,  and  even  with  the  use  that  has  been 
made  of  the  schedules  of  the  league  in  many  cities;  in 
some  of  these,  receipts  and  disbursements  are  reported 
according  to  a  classification  of  revenues  and  expenses, 
irrespective  of  treasury  funds  created. 

For  administrative  purposes  money  received  should  be 
shown  by  the  treasurer  in  his  report  according  to  the 
sources  from  which  these  receipts  have  been  derived. 


li  i 


Pi 


200    REASONABLE  UNIFORMITY  IN  ACCOUNTS 

Money  is  not  revenue.  Money  is  an  asset.  It  may  be  de- 
rived from  "taxes  receivable"  or  "accounts 
of^7ece"pts  receivable  "  or  from  "  judgments  receivable  " ; 
from  sales  of  bonds  or  other  ''credit  con- 
tracts payable,"  or  from  the  sales  of  properties.  The 
receipt  usually  has  a  direct  relation  to  an  asset  or  liability 
account.  The  treasurer,  therefore,  in  his  classification 
of  receipts  and  for  the  pur[)ose  of  making  his  report, 
should  have  direct  reference  to  the  source  from  which 
the  money  came.  The  common  source  of  money  receipt 
is  the  common  basis  for  the  one  side  of  the  treasurer's 
report. 

When  money  is  received,  it  is  entered  directly  to  the 

credit  of  a  fund  to  which  that  particular  class  of  receipts 

has  been  apportioned,  or  it  goes  into  the 

Classification  of  i    r      j       r    xt_      ^  e  i  •  i 

disbursements  general  fund  of  the  treasury,  from  which 
appropriations  are  made.  The  books  of  a 
treasury  should  be  kept  with  respect  to  the  funds  created 
and  the  disbursements  from  each  particular  fund  should 
be  separately  stated.  These  funds  are  created  by  appro- 
priation. There  is  absolutely  nothing  gained  by  trying 
to  show  on  the  books  of  the  treasury  the  purpose  for  which 
a  payment  is  made.  This  summary  is  made  on  the  books 
of  the  comptroller  in  entering  up  the  warrants  and  vouch- 
ers to  the  "expense"  account,  or  "asset"  or  "liability" 
accounts  affected.  The  treasurer  knows  nothing  about 
"expenses,"  "assets,"  and  "liabilities."  He  knows  only 
"money,"  "money"  funds  appropriated,  and  the  order 
or  warrant  of  a  duly  qualifieti  officer  for  the  payment  of 
"money."  The  common  basis  for  uniformity  in  classi- 
fication of  disbursements  will  be  found,  therefore,  in  the 
similarity  of  funds  carried  as  a  result  of  municipal  appro- 
priation. 
Such  may  be  stated  as  the  common  principles  which  lie 


REASONABLE  UNIFORMITY  IN  ACCOUNTS    201 

at  the  foundation  of  any  system  devised,  which  we,  as  a 
committee,  may  hope  to  have  adopted  by  municipdities. 
Conclusion  ^^^^  Uniformity  as  may  come  into  the  ac- 
counts of  cities  must  come  for  the  same 
reason  that  there  is  uniformity  in  the  human  anatomy, 
or  in  the  conclusions  reached  by  the  human  mind  when 
reasonmg  from  common  premises  assumed  — it  must 
come  as  a  result  of  the  device  adopted  being  adapted  to 
the  purposes  and  ends  of  municipal  organization  and 
administration. 

Looking  on  the  problem  that  confronts  the  committee 
and  recognizing  that  the  character  of  the  accounts  must 
be  governed  by  the  comptroUing  purpose,  it  was  thought 
The  form  of  that  the  first  classification  concerning  which 
comptrouer's  agreement  should  be  reached  is  that  which 
pertams  to  the  central  or  controUmg  ac- 
counts. But  since  the  purpose  of  the  controlling  accounts 
IS  that  of  obtaining  summaries  of  results,  which  are 
needed  by  citizens  and  by  officers  in  responsible  positions 
It  IS  esteemed  that  consideration  of  the  form  of  statement 
of  the  comptroUer's  report  should  be  first  obtained.  To 
this  end  such  a  tentative  draft  has  been  submitted  to  the 
committee  for  further  consideration  and  deUberation  on 
Its  part. 


4 


II 


M 


..MiiirTP 


m\' 


m 


The  transition, 
from  economic 
individualism 
to  economic 
centralization 


CHAPTER  XIV 

Municipal  Ownership  as  a  Form  of  Governmental 

Control  ^ 

In  the  eighteenth  century,  theories  of  democracy  were 
in  the  nature  of  protest  against  goveniment  regulation 
and  control;  these  theories  found  expression  in  i)olitical 
and  economic  doctrines  of  laissez-faire.  To-day  the  situa- 
tion is  reversed.  Having  succeeded  in  reducing  govern- 
ment to  forms  of  political  responsibility  there  has  been 
a  gradual  increase  in  the  demand  for  the 
exercise  of  federal  and  state  control.  A 
summary  statement  of  the  successive  steps 
in  this  evolution  may  serve  to  bring  the 
present  situation  into  clearer  light.  They 
appear  about  as  follows: 

(i)  Government  regulation  of  matters  of  business  by 
the  early  estabhshment  of  the  principle  of  a  protective 
tariff  and  by  the  organization  of  a  federal  bank. 

(2)  The  granting  of  direct  aid  to  commerce  and  trans- 
portation. 

(3)  Federal  regulation  and  control  over  the  foreign 
trade  and  the  shipping  interest  of  the  East  by  federal 
embargo  and  non-interference  Acts,  thus  forcing  New 
England  and  its  economic  institutions  into  alignment 
with  prevailing  national  ideals  with  respect  to  internal 
improvement. 

» Paper  published  in  the  Annals  of  the  American  Academy  of  Polit- 
ical and  Social  Science,  November,  1906. 

002 


OWNERSHIP  AS  A  FORM  OF  CONTROL      203 


(4)  Federal  interference  with  the  social  and  economic 
institutions  of  the  South  by  military  force,  compelling  a 
complete  industrial  reorganization  there. 

(5)  The  enactment  of  laws,  state  and  federal,  the 
motive  to  which  has  been  the  more  rapid  development 
of  national  resources  by  increased  grants  of  corporate 
pri\dleges,  market  monopolies,  etc.,  the  net  result  of 
which  has  been  to  encourage  the  buildmg  up  of  great 
capitalistic  and  labor  combines  that  latterly  have  been 
able  directly  or  indirectly  to  control  practically  every 
branch  of  business. 

Thus,  employing  agencies  of  government  as  a  means 
of  giving  direction  to  investment  and  private  undertaking, 
the  transition  from  economic  individualism,  as  it  existed 
one  hundred  years  ago,  to  an  economy  based  on  group 
activity  and  highly  centralized  administrative  control,  as 
it  exists  to-day,  has  been  rapid.  We  have  reached  a 
state  of  social  and  industrial  organization  in  which,  from 
motives  of  self-interest,  nearly  all  classes  combine  in 
making  political  demands  for  a  still  stronger  hand  of  the 
government  in  the  exercise  of  control. 

Capitalists,  enjoying  franchises  and  privileges,  ask  that 
the  mtegrity  of  their  corporate  estates  and  capitalized 
incomes  may  be  guaranteed;  laborers,  having  organized 
for  mutual  advantage  in  making  contracts  with  capital 
The  newly  de-  ^^^  wages,  demand  that  the  hours  and  con- 
veioped  interest  ditions  of  labor  may  be  regulated ;  creditors 
in  govenunent    and  investors  contend  for  public  mspection 

control  J  r       1      •  1    X-  •    •  ,  ,  ,     T  <. 

and  for  legislation  giving  them  added  facili- 
ties for  control  over  corporate  agents;  beneficiaries  of 
trusts  would  have  a  more  strict  law  for  institutional  trus- 
tees; independent  civic  societies  are  seeking  prohibitive, 
regulatory,  and  mandatory  legislation  with  respect  to 
public  education,  child  labor,  and  other  measures  for 


i 


1     ^ 


'■'  I' 


1 


204      OWNERSHIP  AS  A  FORM  OF  CONTROL 

social  betterment  and  looking  toward  a  better  adjust- 
ment to  the  new  crder  of  things;  citizens  as  a  whole,  on 
the  grounds  of  general  welfare,  urge  increased  govern- 
ment action  prohibiting  monopoly  regulating  forms  of 
association  and  providing  a  more  effective  means  for 
group  control.  Th^  phrase  "The  Trusts"  suggests  at 
once  a  condition  of  capitalistic  organization  and  private 
monopoly  advantage  as  well  as  a  subject  with  respect  to 
which  increased  powers  of  government  are  to  be  used. 

How  are  these  enlarged  powers  of  government  to  be 
employed  ?  By  what  means  may  we  best  retain  the  bene- 
fits of  broad  cooperation  and  at  the  same  time  direct  and 
control  group  activity  for  great  common  good?  It  is 
only  with  respect  to  the  method  of  accomi)Ushing  this 
end  that  our  recognized  political  leaders  and  |)olitical 
platforms  are  at  variance.  In  matters  of 
troi^ropoJ^""  legislation,  conservatives  would  "stand  pat," 
claiming  adequate  remedy  in  a  better  en- 
forcement of  the  present  law.  Among  those  less  con- 
servative, one  national  leader  would  have  enacted  radical 
legislation  looking  toward  public  regulation  of  "the 
Trust"  and  restricting  inheritances.  Another  would 
reduce  monopoly  advantage  by  the  abohtion  of  market 
constraint  and  would  increase  the  possibilities  of  govern- 
ment control  by  limiting  and  restricting  corporate  fran- 
chises. Another  sees  no  remedy  adequate  to  cope  with 
centrahzed  capitahstic  influence  over  interstate  public 
service  activities  short  of  government  ownership.  Still 
another  argues  for  a  sociahstic  state. 

Reasoning  from  similar  conditions  on  questions  of 
local  welfare,  measures  are  proposed  for  increasing  the 
activities  of  municipal  government  among  which  both 
the  doctrine  and  the  practice  of  public  ownership  has 
been  fast  gaining  ground.     With  respect  to  the  munici- 


OWNERSHIP  AS  A  FORM  OF  CONTROL     205 

palization  of  public  service  activities  there  are  three  dis- 
tinct schools  of  opinion:  The  first,  and  m  most  cities  the 
predominant  group,  we  may  call  conservative  —  clinging 
Doctrines  of  to  a  modified  form  of  the  ancient  doctrine 
control  as  ap-  of  Uissez-faire,  This  doctrine  is  strenu- 
piied  to  cities  Q^gjy  Mxgi^  by  thosc  who  would  not  have 
the  present  order  disturbed.  A  second  school  holds  that 
in  circumstances  where  the  public  welfare  demands  it, 
the  cities  should  take  over  public  service  enterprises,  as 
has  been  done  in  the  cases  of  the  subway  in  New  York 
and  the  gas  works  in  Philadelphia,  for  purposes  of  exer- 
cising proprietary  control,  but  that  for  pohtical  reasons 
the  city  should  not  attempt  to  operate  them.  A  third 
school  insists  on  both  public  ownership  and  operation  as 
offering  the  only  effective  means  of  protection. 

For  purposes  of  proselyting,  both  argument  and 
illustration  are  arbitrarily  chosen.  Each  school  pro- 
ceeds from  an  assumed  premise  of  public  welfare. 
Those  opposed  to  the  municipal  ownership  of  public 
service  enterprises  point  to  the  prevalence  of  political 
graft;  to  increased  patronage;  to  increased  inducement 
to  bribery  and  electoral  corruption;  to  in- 
evitable political  appointments  —  all  of 
which  are  opposed  to  efficiency  and  economy 
of  service.  Those  who  advocate  municipal  ownership 
argue  that  an  increase  in  functions  will  increase  public 
interest  in  government,  will  carry  with  it  a  choice 
based  on  fitness  that  is  equal  to  the  new  and  increased 
responsibility;  that  the  present  inducement  to  use  cor- 
porate influence  on  legislative  and  judicial  bodies  will 
in  a  large  measure  be  removed;  that  the  public  ser- 
vice will  be  improved  because  it  will  be  more  responsive 
to  public  demands;  that  public  charges  will  be  reduced 
because  they  will  be  laid  on  the  basis  of  cost  of  operation 


Arguments 
briefly  stated 


4 


206     OWNERSHIP  AS  A  FORM  OF  CONTROL 

instead  of  being  laid  on  the  principle  of  "what  the  traffic 
will  bear,"  as  is  the  case  when  these  activities  are  per- 
formed by  private  corporations.  In  each  case  the  con- 
clusion reached  is  an  absolute  one.  The  solution  ofifered 
is  regarded  as  specific  — as  if  there  could  be  neither 
alternative  nor  doubt. 

THE    QUESTION    OF    SUCCESS    OR    FAILURE    OF    MUNICIPAL 
INDUSTRY  A  CONDITIONAL  ONE 

The  fact  that  success  or  failure  of  such  enterprise 
necessarily  must  be  relative,  and  that  this  relation  is  one 
which  has  to  do  with  administrative  conditions,  seems  to 
have  been  quite  overlooked  in  the  controversy.  Assum- 
ing that  a  municipal  industry  may  be  managed  with  the 
same  economy,  efficiency,  and  fidehty  as  a  private  industry, 
even  then  the  question  as  to  whether  the 
Fundamental      ^..     g^Quld  embark  on  a  particular  enter- 

considerattons  -^        .  ,         ,  .11  t^* 

pnse  IS  to  be  determmed  by  conditions. 
From  the  point  of  view  of  public  welfare  the  citizen  must 
consider:  (i)  whether,  after  including  interest  charges  on 
capital  in  the  cost  of  the  service,  the  price  to  the  pubUc 
of  the  same  service  may  be  materially  reduced;  (2)  assum- 
ing that  there  would  be  no  reduction  in  charges  to  the 
pubHc  for  service  rendered,  will  the  control  obtained  over 
the  enterprise  which  may  be  secured  by  pubUc  ownership 
be  adequate  reason  for  the  change? 

To  state  the  case  conversely:  assuming  that  the  actual 
cost  to  the  private  corporation  of  rendering  service  (in- 
cluding a  fair  return  on  capital)  is  less  than  the  price 
charged  to  the  pubHc,  then  the  questions  for  the  citizen 
to  answer  before  he  accepts  the  conclusion  of  advocates 
of  public  ownership  are:  (i)  Can  the  enterprise  be  as 
economically  and  efficiently  managed  under  mimicipal 
authorities?   (2)  If  it  is  conceded  that  it  may  be  as  eco- 


OWNERSHIP  AS  A  FORM  OF  CONTROL     207 

nomicaUy  and  efficiently  managed,  will  the  charges  for  ser- 
vice be  materially  reduced  ?  (3)  In  case  the  price  may  not 
be  materially  reduced,  will  public  ownership  render  the 
service  more  responsive  to  legitimate  public  demands  and 
contribute  more  to  the  convenience  of  the  city  as  a  whole  ? 
If  these  questions  be  answered  in  the  negative,  then  it 
were  better  to  retain  private  ownership  and  operation. 
But  there  is  still  another  question  that  is  avoided  by  this 
assumption:  Is  the  government  so  organized  and  the 
business  of  the  city  so  controlled  that  an  economical  and 
efficient  administration  of  the  functions  may  be  insisted 
on  and  enforced? 

In  each  case  presented  the  question  as  to  whether  a 
city  should  own,  or  own  and  operate,  is  not  to  be  answered 
by  a  priori  reasoning  and  arbitrarily,  but  in  relation  to 
two  factors:  first,  what  are  the  conditions  precedent  to 
the  successful  administration,  and,  second,  are  these  con- 
ditions present  in  the  city  which  has  under  consideration 
the  particular  municipal  venture? 

CONDITIONS  PRECEDENT  TO  SUCCESSFUL  OWNERSHIP  AND 

OPERATION  OF  ENTERPRISES 

Considered  administratively,  the  elements  of  success- 
ful management  of  mimicipal  enterprise  are  the  same  as 
the  elements  of  successful  management  of  private  enter- 
prise. In  each  are  the  same  problems  of  capital  cost, 
the  same  problems  of  construction  and  equipment,  the 
same  questions  to  be  dealt  with  in  operation  and  main- 
tenance. The  differences  are  not  differences 
in  principles  of  administration,  but  differ- 
ences in  methods  of  control  and  in  methods 
of  distribution  of  benefits.  The  methods  of 
control  differ  only  in  the  character  of  con- 
tract by  which  service  is  obtained.    In  pubHc  enterprises 


Administrative 
elements  the 
same  whether 
public  or  pri- 
vate 


208     OWNERSHIP  AS  A  FORM  OF  CONTROL 

the  personnel  of  organization  is  obtained  by  a  form  of 
contract  known  as  political  appointment;  in  private  enter- 
prise the  personnel  of  organization  is  obtained  by  con- 
tract of  employment.  In  each,  however,  the  intelligence  of 
control  depends  on  the  adequacy  of  means  of  obtaining 
information  as  to  the  efficiency  of  the  service  and  the 
economy  of  operation  —  on  methods  by  means  of  which 
personal  responsibility  for  results  may  be  enforced.  Pub- 
lic enterprise  is  capitalized,  maintained,  and  operated  for 
public  gain  ;  private  enterprise  is  capitalized,  maintained, 
and  operated  for  private  gain.  In  public  enterprise  the 
distribution  of  gains  to  citizens  is  in  the  form  of  a  lower 
price  or  better  service  rendered;  in  the  private  imder- 
taking  gains  take  the  form  of  surplus  and  are  distributed 
to  the  stockholders  as  dividends.  While,  therefore,  the 
financial  scale  by  which  distribution  is  measured  is  a 
different  one,  the  elements  which  go  to  make  administra- 
tion successful,  and  the  standards  for  measuring  the 
quantitative  administration  results  or  gains  to  be  dis- 
tributed are  exactly  the  same,  viz.:  Economy,  efficiency, 
and  fidelity  of  management ;  in  each  case  administrative 
questions  revolve  about  these  three  categories. 

If  the  citizen  ask  himself  the  question  as  to  whether  his 
municipality  may  succeed  in  the  management  of  a  given 
industry,  the  answer  must  depend  on  whether  or  not  this 
particular    municipality   may   procure    agents   who   will 
.  manage  the  industry  with  economy,  effi- 

omy  and  fidei-  ciency,  and  fidelity,  and  not  on  what  some 
ity  of  govern-  other  city  has  accomplished.  What  assur- 
ance have  citizens  that  the  proposed  imder- 
taking  will  be  so  managed  ?  This  assurance 
must  lie  in  the  same  principle  of  government  that  is  ap- 
plied by  the  Standard  Oil  Company  or  by  any  well-man- 
aged business  corporation.     Some  provision  must  be  made 


ment  essential 
to  success 


OWNERSHIP  AS  A  FORM  OF  CONTROL     209 

not  only  for  procuring  a  type  of  intelligence  in  manage- 
ment competent  to  exercise  the  sort  of  discretion  required, 
but  also  for  a  complete  and  effective  means  of  obtaining 
information  necessary  to  such  discretion  in  the  exercise  of 
administrative  control  by  the  officers  having  the  business 
in  hand.  There  must  likewise  be  provisions  made  for 
bringing  home  to  citizens  at  large  the  results  of  manage- 
ment in  order  that  official  responsibility  may  be  enforced 
through  the  election  of  a  board  of  aldermen  or  a  chief 
executive. 

The  problem  of  intelligent  and  efficient  municipal  owner- 
ship and  operation  of  industry  is  a  problem  of  the  same 
kind  as  that  of  intelligent  and  efficient  government.  It 
standards  for  differs  only  in  this,  that  in  the  industries 
judgment  re-  the  results  of  mismanagement  or  the  results 
quired  ^j  misjudgmeut  are  subject  to  more  exact 

measurement  by  well-established  and  well-defined  busi- 
ness standards  and  may  be  brought  into  favorable  or 
unfavorable  comparison  with  results  obtained  through 
private  organization. 


THE  PROBLEM  OF  INTELLIGENT  CONTROL 

Analytically  the  prerequisites  of  intelligent  administra- 
tive control  may  be  stated  as  follows:  (i)  An  organiza- 
tion adapted  to  the  business  purpose  by  means  of  which 
managing  competence  may  be  secured;  (2)  a  means  of 
obtaining  accurately  and  currently  the  data  necessary 
to  the  exercise  of  inteUigent  judgment  with  respect  to 
questions  of  adminstration ;  (3)  a  means  for  enforcing 
individual  responsibility  in  the  service. 

Managing  competence  must  in  a  large  measure  come 
through  experience.  To  procure  a  successful  and  experi- 
enced manager,  or  retain  such  a  manager  when  developed, 
and  at  the  same  time  provide  the  means  whereby  the  gen- 


II 


210      OWNERSHIP  AS  A  FORM  OF  CONTROL 

eral  policy  may  be  made  to  respond  to  demands  of  citizens 
The  character  or  Stockholders,  is  the  underlying  principle 
of  organiza-  of  efficiency  in  corporate  organizations.  This 
******  principle  has  been  regarded  as  of  highest 

importance  in  private  business,  and  in  its  development 
there  has  been  evolved  a  highly  centralized  executive 
responsibility.  With  a  highly  centralized  executive  those 
who  are  competent  have  been  retained  as  a  matter  of 
executive  advantage.  When,  in  response  to  a  change  in 
stockholding  policy,  the  chief  executive  officer  has  been 
removed  or  supplanted  by  another,  the  new  president  of 
the  company,  in  his  own  interest,  may  retain  any  and  all 
of  the  former  departmental  heads  in  order  that  he  may 
avail  himself  of  the  best  ex[>erience  in  the  successful  prose- 
cution of  the  enterprise.  Being  held  to  strict  account 
for  administrative  results,  he  has  not  filled  the  ranks  of 
the  company  with  his  own  friends,  for  the  reason  that  such 
a  course  would  have  worked  his  own  destruction.  In 
any  large  corporation,  the  president's  success  must  be 
attained  through  his  subordinates,  and  being  constantly 
measured  by  standards  of  economy  and  efficiency,  certain 
it  is  that  his  reputation  for  success  will  not  be  enhanced 
by  supplanting  an  old  departmental  head  by  some  one 
less  competent. 

The  trend  of  American  municipalities  in  charter-making 
has  been  to  follow  this  principle  of  private  corporate 
organization.  The  great  defect  in  municipal  administra- 
tion has  not  lain  in  failure  to  make  provision  for  the  exer- 
cise of  executive  powers,  but  in  the  lack  of  means  in  the 
hands  of  a  chief  executive  for  determining  the  economy, 
efficiency,  and  fidelity  with  which  operative  departments 
of  government  are  managed.  Not  having  this  intelli- 
gence, and  there  being  no  provision  made  whereby  the 
citizen  may  hold  the  chief  executive  to  strict  account,  the 


OWNERSHIP  AS  A  FORM  OF  CONTROL     211 

tendency  has  been  to  extend  political  influence  beyond 
the  chief  executive  himself  and  include  the  personnel  even 
of  industrial  department  activities  within  the  patronage  to 
be  dispensed  by  the  party  boss. 

Turning  now  to  the  second  essential,  there  are  two 
general  branches  of  corporate  service  by  means  of  which 
those  in  responsible  administrative  positions  can  keep 
themselves  informed  with  respect  to  the  doings,  economy, 
efficiency,  and  fidelity  of  their  subordinates.     These  two 
arms  of  administration,  by  means  of  which  information 
is  collected,  are  inspection  and  succounting.    The  method 
used  to  convey  information  collected  to  the  proper  head 
is  reporting.    When  the  business  has  come  to  be  so  large 
that  the  one  at  the  head  may  not  have 
immediate   contact   with    its   every   detail, 
intelligent  management  requires  that  com- 
plete and  accurate  information  be  regularly 
brought  to  the  attention  of  administrative 
heads   through  branches  of  the  organized  service,  i.e., 
through  subordinates.     So  far  as  the  results  may  be 
numerically  and  financially  stated,  this  information  may 
be   furnished    by  means   of    a   well-devised    system  of 
administrative  accounts  and  statistics.     So  far  as  infor- 
mation has    to  do  with   the  quality  of    the    materials 
furnished,   with    service    performed,    with    the    physical 
condition  of  properties,  with  the  number  of  employees 
actually  in   the  service  of   each  department,  with   the 
attitude   of   subordinates  toward  their  work,   and  their 
fidelity  toward  the  institution  in  whose  service  they  are 
employed,  the  accounts  must  be  supplanted  by  inspec- 
tion.    The  administrative  value  of  facts  obtained  depends 
on  its  accuracy,  its  completeness,  and  the  promptness  with 
which  it  is  brought  to  the  attention  of  responsible  heads. 
These  two  branches  or  arms  of  administrative  control 


The  means 
for  promptly 
obtaining 
accurate 
information 


I    i 


f  I 


'A 


«12     OWNERSHIP  AS  A  FORM  OF  CONTROL 

(independent  of  each  other,  but  each  responsible  to  the 
executive  head)  are  the  means  by  which  the  most  diffi- 
cult, complex,  and  widely  extended  corporate  activities 
are  inteUigently  directed.  Without  these  two  branches 
of  the  service  efiFectively  organized,  large  corporations 
would  fall  a  victim  to  their  own  impotence  and  incapacity. 
In  order  that  a  system  of  accounts  may  be  adapted  to 
such  a  controlling  purpose,  adequate  provisions  must 
be  made  for  an  accurate  record  of  all  the  varied  details 
of  the  business,  as  well  as  the  collection  and  summariza- 
tion of  these  data  about  the  problems  concerning  which 
those  in  controlling  position  are  required  to  think.  A 
system  of  accounts  which  falls  short  of  this  mark  does  not 
measure  up  to  administrative  needs.  Inspection  as  a 
branch  of  control  must  cover  every  physical  and  operative 
relation  which  does  not  come  under  the  personal  scrutiny 
of  the  executive,  or  which,  owing  to  its  nature,  may  not 
be  regularly  and  promptiy  reported  in  the  accounts. 

DEFECTIVE  ADMINISTRATIVE  CONTROL  IN  CITIES 

Administration  comprehends  two  distinct  subjects  of 
controlling  intelligence:  (i)  That  which  pertains  to  prop- 
erty and  funds,  and  (2)  that  which  pertams  to  service 
rendered  and  operation.  In  the  American  municipality 
great  care  has  been  exercised  to  obtain  a  strict  accounting 
for  funds.  Every  caution  has  been  drawn  around  monetary 
receipts  and  disbursements,  but  with  this  the  accounting 
has  practically  ended.  In  but  few  municipalities  (and 
these  within  the  last  few  years)  has  any  attempt  been 
made  to  introduce  accounts  which  will  reflect  economy, 
efficiency,  and  fidelity  of  management.  Few  have  at- 
tempted to  keep  an  account  even  of  properties.  In  the 
great  cities,  like  New  York,  Philadelphia,  and  Boston, 
there  is  no  way  in  which  the  chief  executive  may  inform 


OWNERSHIP  AS  A  FORM  OF  CONTROL     213 

himself  accurately  and  regularly  on  questions  of  current 
business  with  respect  to  the  water  departments,  the  cost 
to  the  city  per  kilowatt  of  electric  light  manufactured  at 
municipal  plants,  or  the  cost  of  operating  other  mimici- 
pal  enterprises.  How  may  he  intelligently  think  about 
matters  of  economy  and  operative  efficiency  in  these 
departments?  How  may  he  know  whether  the  city  is 
charging  too  little  or  too  much  for  water?  How  may  he 
know  whether  the  head  of  the  department  is  supplying 
water  to  certain  large  users  who  can  afford  to  be  generous 
toward  the  city's  employees  without  adequate  compensa- 
tion being  made  for  the  same  to  the  city  ?  How  may  he 
know  if  water  rents  are  properly  collected  if  only  cash 
receipts  are  reported  ?  How  may  the  head  of  the  depart- 
ment himself  know  whether  the  pumping  or  storing  is 
bemg  economically  done?  Whether  adequate  provisions 
are  being  made  to  keep  the  mains  and  reservoirs  in  repair. 
In  so  far  as  he  has  an  intelligent  basis  for  administrative 
control,  this  at  present  comes  through  inspection  and  not 
through  operative  accounts  and  statistics.  By  methods 
of  inspection  he  may  keep  the  property  in  rimning  con- 
dition, but  he  may  know  Httle  or  nothing  about  questions 
of  economy  and  may  obtain  only  a  half  view  of  efficiency. 
Were  private  corporations  to  rely  on  similar  methods  of 
administrative  control,  they  would  be  quite  as  loosely 
managed  and  quite  as  incompetently  manned  as  are  our 
municipal  industries.  So  soon  as  we  have  efficiency  in 
government,  we  may  efficiendy  manage  public  industries. 
Until  we  do  have  efficient  government,  not  only  may  we 
not  construct  public  works  with  economy,  but  our  great 
municipalities  will  also  suffer  even  more  from  incompe- 
tence and  infidelity  in  protection  of  life,  health,  and  prop- 
erty  and  the  promotion  of  pubUc  education  and  pubUc 
morals. 


» 


i» 


I 


mi 


I 


214      OWNERSHIP  AS  A  FORM  OF  CONTROL 

Certain  cities  have  recently  responded  to  demands  for 
accounts  and  reports  by  means  of  which  administrative 
results  may  be  shown.  Some  of  these,  however,  are 
making  Uttle  or  no  use  of  these  accounts  after  they  have 
been  introduced.  The  financial  operative  results  are  not 
The  estab-  ^^^^g  Coordinated  with  physical  operating 
lishment  of        facts,   the  outcome  being  that  the  people 

jiS^^  ^""^     ^"""^  ^"^^  "'''^^  ^^^^^  the  affairs  of  the 
city  than  before  such  accounts  were  intro- 
duced.   The  fact  that  the  operating  cost  of  water  is 
$3,000,000  per  year,  gives  Httle  information,  either  to 
the  citizen  or  to  the  official,  more  than  might  be  obtained 
by  the  old  method,  which  reported  $5,000,000  per  annum 
had  been  disbursed  by  the  department.     The  only  diffcr- 
erence  in  the  form  of  statement  is  that   the  operation 
account  clearly  distmguished  current  expenses  from  better- 
ments.   But  to  make  $3,000,000  inteUigiblc,  either  to  the 
administration  or  to  the  citizen,  this  amount  must  be 
divided  between  the  cost  of  pumping  and  storage  and  the 
cost  of  distributing;  more  than  this,  every  division  of  cost 
must  be  interpreted  in  terms  of  some  standard  of  judg- 
ment such  as  gallons  produced,  and,  so  far  as  possible, 
this  result  must  be  classified  by  districts  or  stations  or 
other  operative  groups  for  purposes  of  showing  adminis- 
trative relations.    If  need  be,  as  a  part  of  management 
and  as  a  means  of  determining  administrative  facts  to  be 
reported,  there  should  be  meters  put  on  the  pumping  and 
distributing  mains.    Some  method  should  be  appUed  for 
determming  whether,  and  where,  there  is  an  excessive 
wastage;  what  the  amount  pumped  at  each  station;  what 
the  amount  distributed  through  each  main;    in  whose 
official  district  the  wastage  is  large,  etc.    The  administra- 
tive bearmg  of  such  information  does  not  end  with  fixing 
responsibility,  but  enables  the  officer  in  control  to  think 


OWNERSHIP  AS  A  FORM  OF  CONTROL     215 

whether  the  rates  charged  are  adequate,  and  to  efficiently 
direct  the  management  in  the  interest  of  economy.  Until 
some  plan  is  adopted  by  cities  by  means  of  which  ordinary 
intelligence  may  be  exercised  in  the  management  of  munici- 
pal affairs  it  would  be  worse  than  foolish  for  a  city  to 
attempt  to  manage  industry  and  to  compete  with  private 
corporations  offering  to  perform  public  service. 

Another  consideration  which  has  to  do  with  the  enforce- 
ment of  responsibility:  Assuming  that  adequate  method 
be  provided  whereby  economy,  efficiency,  and  fidelity  of 
service  may  be  estabUshed,  and  that  this  method  may  be 
such  that  every  one  in  responsible  position  may  be  con- 
Enforcing  re-  fronted  with  his  own  record,  it  is  important 
sponsibUity  for  to  know  whether  or  not  executive  control 
results  jj^^y  ^^  enforced.    It  has  been  noted  be- 

fore that  private  and  pubUc  enterprises  bear  this  marked 
difference:  that  private  service  is  by  contract  of  employ- 
ment; that  political  service  is  usually  by  contract  of 
election  or  appointment.  This  difference  has  a  direct  bear- 
ing on  administrative  discipline.  To  make  the  municipal 
problem  more  complicated,  civil  service  reform  measures 
have  been  interposed  which,  with  the  present  means  of 
accounting  and  inspection,  practically  render  responsible 
heads  of  departments  and  chief  executives  helpless  in  the 
face  of  a  combination  of  inefficient  municipal  employees. 
Not  having  a  method  of  inspection  and  account  by  means 
of  which  evidence  of  each  act  and  transaction  is  pro- 
duced and  preserved,  and  not  having  a  method  of  promptly 
reporting  the  facts  supported  by  such  evidence,  executive 
and  subordinate  responsibility  is  left  unprotected,  estab- 
lished policies  are  unenforced.  The  chief  of  the  adminis- 
tration, as  well  as  departmental  heads,  have  no  legal 
ground  on  which  they  may  stand  before  a  court  in  action 
for   removal  or  discipline;  they  have  no  claims  which 


(I 


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mm 


||!|l 


'.'^1 


1 


! 


1 


216     OWNERSHIP  AS  A  FORM  OF  CONTROL 

may  be  supported  before  the  people  other  than  those  of 
partisan  character.  As  a  result,  remedy  for  the  spoils  of 
patronage  has  been  sought  in  measures  called  "checks 
and  balances,"  practically  takmg  away  from  those  in 
directing  position  the  power  to  efficiently  manage  and 
direct. 

But  lack  of  means  necessary  to  the  enforcement  of  the 
responsibility  is  not  alone  applicable  to  disciplinary  acts. 
The  heads  of  divisions,  even  the  heads  of  departments, 
may  not  be  held  to  an  intelligent  responsibiUty  for  opera- 
tive results.  About  the  only  information  which  comes 
regularly  to  the  mayor  has  little  or  nothing  to  do  with 
the  administrative  duties  of  his  office.  He  is  m  a  position 
to  be  promptly  confronted  with  complaints  or  refusal  to 
perform  acts  demanded  of  subordinates  by  a  poHtical 
boss,  or  to  have  heads  of  departments  convicted  of  ofifen- 
sive  partisanship;  but  so  far  as  the  manner  in  which  the 
department  or  municipal  activity  is  managed,  he  has 
little  to  show  by  way  of  defense,  nor  has  the  mayor,  as 
chief  executive,  adequate  data  for  judgment  on  issues 
presented. 

The  same  situation  prevails  with  respect  to  the  respon- 
sibility of  the  mayor  to  the  people.  Being  held  legally 
responsible  for  the  official  acts  of  heads  of  divisions  of 
the  service,  and  for  knowledge  with  respect  to  the  doings 
of  each  department,  he  not  only  does  not  have  before  hun 
the  information  essential  to  inteUigent  judgment  on  matters 
of  public  business,  but  he  is  unable  to  render  an  intelli- 
gent report  of  his  own  doings.  He  may  not  even  act 
intelligently  on  the  annual  budget.  In  consequence  the 
mayor  falls  victim  to  the  shifting  fortunes  of  the  poHtical 
boss  whose  creature  he  is  made,  or  having  been  elected 
independently  of  party,  is  swept  aside  by  a  wave  of  popu- 
lar prejudice  raised  on  an  issue  of  duty  without  anything  to 


OWNERSHIP  AS  A  FORM  OF  CONTROL     217 

show  for  conscientious  service  rendered.  So  long  as  this 
condition  prevails,  municipalities  are  not  in  a  position 
intelligently  to  undertake  the  ownership  and  operation 
of  industries. 

CONCLUSION 

Intelligent  ownership  requires  that  there  may  be  an 
intelligent  method  whereby  the  duties  and  responsibiUties 
of  proprietorship  may  be  performed.  Even  as  owner  of 
a  gas  plant  company  without  operation,  there  should  be 
required  such  an  account  of  stewardship  and  such  an 
inspection  as  will  inform  the  city  official  and  the  citizen 
whether  or  not  the  plant  in  the  possession  of  the  private 
corporation  is  being  adequately  maintained  or,  if  not 
adequately  maintained,  whether  an  adequate  reserve  is 
being  made  for  depreciation.  A  municipality  which 
would  own  and  operate  an  industry  has  the  problem  of 
proprietorship  compounded  by  all  of  the  problems  of 
operation  and  all  the  problems  of  service. 

Just  so  soon  as  cities  provide  the  means  for  intelligent 
control,  for  the  protection  as  well  as  the  enforcement  of 
managing  responsibiUty,  for  the  reward  of  the  efficient 
and  the  faithful  and  the  degradation  of  the  inefficient 
and  the  time-serving  civic  infidel,  just  so  soon  will  it  be 
prepared  to  undertake  functions  now  performed  by  private 
corporations  and  to  perform  these  functions  in  a  manner 
not  only  creditable  to  themselves  but  in  harmony  with  the 
highest  welfare  of  the  people.  In  the  meantime  the  evils 
to  be  feared  or  which  have  been  realized  in  municipal 
ownership  will  have  to  be  balanced  against  evils  com- 
plained of  at  the  hands  of  public-service-private  corpora- 
tions and,  as  in  Philadelphia,  the  people  will  continue 
to  flee  from  evils  known,  in  a  system  in  force,  to  evils 
unknown,  in  a  system  which  offers  itself  as  a  temporary 
expedient.    The  public  service  will  be  kicked  and  bantered 


i  ■ 


11 


!■    ;:'!!! 


I  i\ 


1  ;!'( 


'M ' 


218      OWNERSHIP  AS  A   FORM  OF  CONTROL 

about  as  is  the  municipal  official  who,  be  he  true  or  be  he 
false,  is  carried  away  by  partisan  policies  or  in  a  response 
to  the  cry  of  the  demagogue  to  "sweep  the  rascals  out.'* 

Asking  for  increased  government  control,  should  not 
the  American  people  premise  this  request  on  an  insistent 
demand  for  increased  intelligence  concerning  the  manage- 
ment of  business  affairs?  Until  adequate  provision  has 
been  made  for  such  intelligence,  increased  government 
control  through  public  ownership  and  ojjeration  may 
not  safely  be  undertaken.  Is  not  citizen  organization  and 
citizen  endeavor  which  looks  to  methods  of  business 
and  a  knowledge  of  results,  an  organization  which  will 
insistently  strive  through  publicity  both  for  an  enlightened 
electorate  and  an  intelligent  directorate,  the  missing  link 
between  government  for  the  satisfaction  of  personal  greed 
or  graft  and  government  for  the  common  good  —  the 
introduction  of  the  principle  of  the  old  town-meetmg  into 
the  modem  metropolis,  with  the  methods  necessary  to 
make  this  principle  effective? 


CHAPTER  XV 

Chicago's  Accounting  Reform* 

As  secretary  of  your  Committee  on  Uniform  Municipal 
Accounts,  I  am  requested  to  report  on  the  Chicago  situa- 
tion. This  report  was  to  have  been  rendered  by  Mr. 
Haskins.  His  long  professional  experience  had  made 
him  an  authority,  and  his  appreciation  of  the  need  for 
a  broader  basis  for  the  classification  of  municipal  accounts 
had  brought  him  into  enthusiastic  cooperation  with  public 
accountants  and  other  professional  men  who  make  up 
the  working  membership  of  your  committee.  What  is 
more  to  the  point,  his  accounting  firm  for  the  last  two 
years  has  had  immediate  charge  of  the  installation  of 
the  new  system  on  which  this  report  is  to  be  based.  Mr. 
Haskins'  sudden  death,  ocurring  only  a  week  after  the 
last  meeting  of  your  committee  at  his  home 
in  New  York,  together  with  the  expressed 
desire  of  the  secretary  of  the  League  to 
have  this  —  the  largest  accounting  operation  to  which 
the  schedules  of  the  committee  have  been  applied  — 
reported  on  at  this  time,  are  the  conditions  under  which 
this  hastily  prepared  essay  is  undertaken. 

Two  years  ago  Mr.  Haskins  made  a  brief  report  to  the 
Municipal  League  on  the  subject  in  hand.  His  profes- 
sional firm  had  then  just  entered  on  an  investigation  which 
has  led  to  the  present  result.    In  this  preliminary  report 

*  Paper  read  before  the  Ninth  Annual  Conference  of  the  National 
Municipal  League  held  at  Detroit,  Michigan,  April  23,  1903. 

219 


Charles  Waldo 
Haskins 


i 


■i 


220 


CHICAGO*S  ACCOUNTING  REFORM 


I: 

il 


Mr.  Haskins  set  forth  some  of  the  conditions  which  made 
necessary  a  re\dsion  of  the  financial  records  of  the  city. 
The  situation  was  gone  into  in  greater  detail  in  his  report 
to  the  Merchants'  Club.  For  perspective,  these  conditions 
may  be  briefly  restated:  Within  fifty  years  Chicago  had 
grown  from  a  frontier  village  to  a  municipality  of  two 
milhons;  it  had  begun  with  the  small  town  organization; 
as  its  population  and  territorial  jurisdiction  had  spread 
over  the  surrounding  prairies  and  swamps,  these  primi- 
tive local  town  governments  had  been  incorporated  by 
annexation  rather  than  by  process  of  readjustment  and 
reorganization.    The    municipal    child    had    so    rapidly 

grown  to  manhood  that  its  political  dress 
CWciSb       °    ^^  ^  constant  misfit;   its  clothes  were  too 

small  and  the  neighboring  youths  over  which 
it  stood  as  a  foster  brother  refused  to  give  the  cloth  neces- 
sary to  complete  a  decent  cloak  of  authority;  —  the  last 
pattern  had  been  designed  for  a  city  of  about  one-fourth 
its  present  size. 

The  city  of  Chicago  had  finally  come  to  include  more 
than  twenty  separate  taxing  jurisdictions,  over  which  it 
had  little  administrative  control  and  between  which  there 
was  no  well-defined  methtxl  of  cooperation  for  common 
ends;  the  financial  side  of  the  administration  had  be- 
come unmanageable  and  the  government  in  all  of  its 
activities  was  crippled.  Recognition  of  this  situation  on 
the  part  of  both  citizens  and  administration  was  the  first 
step  toward  reform.  Citizen  activity  and  discontent  were 
in  evidence  on  every  side.    The  administration  had  four 

grave  facts  confronting  it  which  seemed  to 

reflect  on  the  government.  In  the  first  place, 
court  judgments  had  gradually  accimiulated  against  the 
corporation  until,  on  January  i,  1900,  they  were  known  to 
amount  to  over  three  million  dollars;  these,  however,  had 


The  situation 


CHICAGO'S  ACCOUNTING  REFORM 


221 


Attitude  of  the 
mayor 


not  been  properly  incorporated  into  the  accounts  of  the 
city.  In  the  second  place,  it  was  found  that  the  funded 
debt  of  the  city  was  much  larger  than  represented  on  the 
books.  In  the  third  place,  it  was  discovered  by  the  comp- 
troller that  previous  administrations  had  been  using  trust 
funds  for  running  expenses.  In  the  fourth  place,  the 
methods  of  accounting  in  use  failed  to  show  the  amount 
of  taxes  assessed  and  uncollected.  That  something  must 
be  done  was  apparent,  and  in  the  face  of  an  active  public 
opinion  the  administration  was  in  such  position  that  it 
could  protect  itself  only  by  a  thorough  revision  of  accounts. 
The  mayor  of  the  city  of  Chicago  was  alive  both  to  the 
public  demand  and  to  the  probable  results  of  pubUc 
censure  in  case  his  own  incumbency  were 
not  relieved  from  suspicions  which  were 
sure  to  follow.  In  his  annual  message  he 
commended  the  insistent  agitation  of  citizens  for  munici- 
pal reorganization  and  for  central  control;  he  urged 
the  "welding  of  the  present  taxing  bodies  exercising 
municipal  functions  within  the  limits  of  Chicago  into  a 
harmonious  whole,  by  which  useless  officers  may  be  dis- 
pensed with  and  all  the  various  municipal  functions  may 
be  combined  inteUigently  under  individual  control." 

The  means  adopted  to  accomplish  this  end  were  largely 
the  result  of  the  activity  of  an  independent  citizen  organiza- 
tion —  the  Merchants'  Club.  This  was  one  of  the  many 
independent  bodies  of  public-spirited  business  men  who 
had  interested  themselves  in  the  problems 
citb™*'*^^**^*^'  of  municipal  reform,  and  who  were  working 
in  harmony  with  the  mayor.  As  a  business 
proposition,  the  Merchants'  Club  was  first  to  recognize 
the  necessity  for  a  thorough  and  well-adapted  system  of 
accounts.  Such  a  method  appealed  to  their  practical 
judgment  as  the  first  result  to  be  obtained  before  any 


\    ! 

4 


222 


CHICAGO'S  ACCOUNTmC  REFORM 


sound  thinking  might  be  done  about  present  financial 
condition  or  future  administrative  action.  This  organiza- 
tion, therefore,  requested  of  the  mayor  permission  to- 
have  an  independent  investigation  of  the  city's  account- 
mg  methods.  The  request  was  granted,  and  a  firm  of 
well-known  certified  pubhc  accountants  was  employed. 
The  preUminary  mvestigation  lasted  several  months,  a 
report  bemg  made  to  the  Merchants'  Club,  March  21, 
1901. 

Reporting  on  accounting  methods,  the  investigation 
showed  (i)  that  although  improvements  had  been  intro- 
duced by  the  administration  within  the  two  years  preceding, 
there  was  still  a  lack  of  uniformity  and  a  confusion  of 
Defects  in  the  methods  inherited  from  the  past  which  practi- 
system  of  ad-  cally  made  the  records  of  the  city  unavailable 
ministration  ^^^  ^^  administrative  purpose;  (2)  that 
the  accounts  with  different  city  departments,  as  shown 
on  the  books  of  the  comptroller  in  many  instances,  did 
not  agree  with  the  same  accounts  on  the  books  kept  by 
the  departments  themselves;  (3)  that  there  was  no  ade- 
quate system  of  audit  and  no  way  of  bringing  the  various 
accounts  into  harmony;  (4)  that  the  comptroller  lacked 
the  authority  in  many  instances  to  compel  a  uniform 
method,  and  had  not  adequate  power  to  inspect,  or  audit 
before  authorizing  disbursement;  (5)  that  there  was  such 
variety  in  the  methods  of  disbursements  as  to  make  audit- 
ing and  verification  of  claims  difficult,  even  if  adequate 
authority  were  given;  (6)  that  in  the  records  of  receipts 
and  disbursements,  both  revenue  receipts  and  the  pro- 
ceeds from  loans  were  accredited  to  the  central  funds  and 
subsequently  distributed,  in  such  manner  that  the  gen- 
eral accounts  in  many  instances  did  not  furnish  an  in- 
teUigent  statement  of  operatmg  expense  as  distinct  from 
construction,  property,  and  other  permanent  accounts; 


CHICAGO'S  ACCOUNTING  REFORM 


223 


(7)  that  all  warrants  drawn  on  the  treasurer  were  paid 
by  him,  by  means  of  his  own  private  check,  and  these 
were  not  a  part  of  the  pubUc  records;  (8)  that  entries 
such  as  judgments  of  valuation  were  made  against  the 
"  stock  account,"  or  what  is  sometimes  known  as  " closing" 
account,  thus  making  statements  of  current  revenues  and 
expenses  more  uncertain;  (9)  that  the  treasurer's  special 
assessment  cash-books  were  frequently  destroyed,  thus 
leaving  a  large  amount  of  trust  funds  without  books 
of  original  entry;  (10)  that  errors  and  discrepancies 
of  account  were  adjusted  by  ''posting"  a  balance  with- 
out investigation  of  the  errors  or  discrepancies;  (11) 
that  the  item  "cash,"  as  shown  in  the  general  balance 
sheets  rendered,  was  stated  without  regard  to  the 
funds  to  which  the  cash  belonged,  thus  giving  a  false 
impression  as  to  available  assets;  (12)  that  the  records 
of  disbursements  in  the  comptroller's  office  were  in- 
complete and  defective;  (13)  that  there  was  no  record 
in  the  comptroller's  office  of  compensation  in  arrears, 
and  no  record  of  departmental  materials  and  suppUes; 
(14)  that  no  proper  record  was  kept  of  current  or  fixed 
HabiUties  of  the  city,  and  the  city  had  no  means  of  finding 
out  the  extent  of  its  present  indebtedness. 

The  report,  however,  did  not  stop  here.  It  went  into 
the  financial  and  economic  aspects  of  the  situation  as 
well.  In  reference  to  the  revenue  system  it  was  shown 
Financial  and  (i)  that  adequate  provision  was  not  made 
economic  as-  for  meeting  the  current  expenses  of  the  city. 
P**^**  In  so  far  as  the  city  rehed  on  taxation  for 

revenue,  taxes  for  the  current  year  were  levied  on  April  i, 
and  were  not  payable  until  December;  —  in  other  words, 
the  current  revenues  did  not  anticipate  current  expenses. 
In  order  to  utilize  taxes  assessed  but  not  collected,  as 
available  resources,  the  city  was  required  to  borrow  in 


1 
III 

4 


i 


ir^ 


224 


CHICAGO'S  ACCOUNTING  REFORM 


CHICAGO'S  ACCOUNTING  REFORM 


225 


i 


m 


11 


ii.i 


anticipation  of  taxes  to  be  collected  during  about  ten 
months  of  the  year,  and  to  pay  on  an  average  about  four 
per  cent  for  the  advances.  To  further  this  kind  of  bor- 
rowing, a  law  had  been  enacted  which  allowed  the  treas- 
urer to  issue  tax  warrants  against  taxes  assessed,  but  not 
collected,  to  the  extent  of  seventy-five  per  cent  of  the  total 
amount  uncollected.  Similar  arrangements  had  been  made 
for  meeting  expenses  of  the  water  department.  Water  cer- 
tificates were  issued  in  anticipation  of  revenue.  (2)  The 
taxing  bodies  had  no  direct  or  immediate  correlation  and 
did  not  place  the  collection  of  taxes  immediately  under 
the  supervision  of  municipal  officers.  Taxes  levied  were 
to  be  collected  by  what  were  known  as  town  collectors 
—  officers  elected  within  the  jurisdiction  of  the  old  "  towns" 
that  had  been  absorbed  by  the  broader  political  organiza- 
tion. Delinquent  taxes  were  to  be  collected  by  the  county 
treasurer,  who  was  ex-officio  county  collector.  There 
was  no  municipal  officer,  therefore,  who  had  any  immedi- 
ate responsibility  for  the  collection  of  current  revenues 
in  the  form  of  direct  taxes.  (3)  The  money  when  col- 
lected had  been  retained  by  these  town  and  county  officers 
for  their  own  personal  profit.  It  was  shown  that  although 
by  provision  of  law  they  were  allowed  two  per  cent  on  the 
taxes  collected,  not  to  exceed  $1,500  per  year,  the  excess 
to  be  turned  over  to  the  city  treasurer,  these  officers  had 
regularly  retained  two  per  cent  on  the  total  amount  col- 
lected, and,  following  the  established  custom,  during  the 
preceding  five  years  the  city  had  lost  $280,699  on  this 
accoimt;  that,  by  reason  of  the  withholding  of  taxes 
collected,  the  city  had  been  required  to  borrow  money 
to  meet  ciu*rent  expenses,  while  these  officers  had  been 
obtaining  a  large  revenue  in  the  form  of  interest  on  ac- 
count. It  was  estimated  that  the  indirect  cost  to  the  city 
through  the  employment  of  such  methods  was  very  large. 


Faults  in  the 
financial  system 


(4)  Another  fault  in  the  financial  system  was  found  in  the 
losses  and  depreciation  due  to  taxes  written 
off  or  uncollected.  These  losses  were  allowed 
on  the   mere   representation  of  the  town 
or  county  collector  without  investigation,  audit,  or  in- 
quiry.   Such  losses,  according  to  the  report  of  the  comp- 
troller, amounted  to  about  $500,000  per  annum.  (5)  The 
comptroller's   books  of  adjustments  showed   no  record 
such  as  taxes  uncollectible  or  held  in  abeyance,  nor  of 
taxes  in  arrears.    The  collection  of  franchise  taxes  was 
under  a  separate  bureau,  and  returns  of  this  class  were 
received  without  question  or  audit.    In  two  cases  it  was 
shown  that  neither  car  licenses  nor  mileage  licenses  had 
been  collected  for  five  years;    the  records  were  incom- 
plete and  unreliable.    Considerable  loss  was  entailed  on 
these  accounts.     (6)  Special  assessments,  while  under  the 
administrative  direction  of  a  local  improvement  board, 
because  of  an  inadequate  system  of  accounting,  had  been 
a  heavy  burden  to  the  city.    The  expenses  for  interest 
resulting  from  withholding  the  collection  of  such  assess- 
ments were  shown  to  be  very  large.     (7)  The  water- 
works and  other  municipal  industries  were  bureaus  of 
a  general  department  of  public  works,  in  which  there 
were  no  adequate  accounting  provisions  for  showing  the 
operations  of  the  public  industries.     (8)  The  method  of 
payment  of  city  employees  in  cash  by  sending  the  pay- 
master's wagon  from  place  to  place  where  men  congre- 
gated was  a  waste  of  time  and,  therefore,  a  charge  on  the 
city,  while  the  method  of  paying  the  police  and  other 
regularly  employed  persons  in  the  service  tended  to  mter- 
fere  with  the  duties  to  which  they  were  assigned.     (9)  The 
real  estate  record  was  so  inaccurate  and  so  poorly  kept 
that  the  city  had  allowed  many  of  its  rights  to  lapse,  and 
the  city  had  suffered  loss  on  this  account. 
16 


f^l 


226 


CHICAGO'S  ACCOUNTING  REFORM 


M 


. 


From  the  report  thus  submitted  it  became  evident  that 
the  first  judgment  of  the  members  of  the  Merchants' 
Club  was  fully  justified;  that  the  place  where  municipal 
reform  must  begin  was  with  the  accounts  and  financial 
records  of  the  city;  to  reduce  them  to  such  order  as  to 
make  the  data  available  as  a  basis  for  poUti- 
Reforai  in  ac-    ^^  ^^^^^^  ^^^  administrative  control.  This 

counts  essential 

report  ha\ing  been  laid  before  the  mayor, 
an  ordinance  was  drafted  and  passed  authorizing  Haskins 
&  Sells,  certified  public  accountants,  to  install  a  new 
system  of  accounts,  and  to  supervise  its  operation  during 
the  first  year  after  installation. 

Detailed  consideration  of  the  auditing  and  accounting 
difficulties  of  the  city  of  Chicago  prior  to  the  introduction 
of  the  new  system  would  be  of  little  purpose,  per  se.  Ours 
is  not  a  historical  interest;  our  attention  is  directed  to  the 
present  and  toward  the  future.  A  perspective  of  past 
conditions  is  of  value  only  as  a  background  from  which 
we  can  mark  progress.  For  the  present  purj)ose,  two 
questions  are  before  us:  (i)  Those  interested  in  the  gen- 
eral work  of  the  National  Municipal  League  wish  to  know 
the  extent  of  the  reform  accompUshed  —  the  progress 
made  by  the  introduction  of  a  new  system  of  accoimts; 
(2)  the  Committee  on  Uniform  Accounting  are  inter- 
ested in  knowing  whether  the  schedules  and  classification 
of  financial  data  proposed  by  them  as  a  basis  for  scientific 
and  uniform  accounting  will  apply  to  such  a  situation 
as  that  described.  The  first  is  a  local  question ;  the  second 
is  a  general  one.  The  work  of  the  committee  has  been 
directed  toward  the  establishment  of  a  common  basis 
for  municipal  financial  records  as  a  first  premise  for  think- 
ing about  common  problems  of  administration  and  en- 
lightened citizenship. 

Answering  the  first  question,  we  turn  to  the  official 


CHICAGO'S  ACCOUNTING  REFORM 


report  of  the  comptroller  of  the  city  of  Chicago  just  issued. 
The  features  of  the  new  system  as  there  set  forth  are 
as  follows:  "  (i)  Uniformity  in  accounting 
new  s:^tem  *  methods.  (2)  Concentration  of  the  account- 
ing m  the  Comptroller's  office.  (3)  Collection 
of  all  revenue  by  the  City  Collector.  (4)  Daily  remittances. 
(5)  Monthly  reports  and  balances  between  the  Comptroller 
and  all  departments.  (6)  Monthly  financial  report  of  the 
Comptroller.  (7)  Organization  of  an  Audit  Bureau  and  of 
a  methodical  plan  of  auditing  by  officers  and  employees 
retained  specially  for  that  purpose,  and  independent  of  all 
departments.  (8)  Accruement  of  revenues  on  the  General 
Books  of  the  City,  where  they  will  always  be  evident  as 
obligations  due  the  city  until  paid.  (9)  Approval  of  all 
contracts  and  requisitions  for  supplies  by  the  Comp- 
troller, to  prevent  departments  from  incurring  liabilities  in 
excess  of  appropriation.  (10)  The  issuance  of  all  fiscal 
stationery,  forms  and  receipts,  consecutively  numbered  by 
the  Comptroller,  and  holdmg  the  departments  responsible 
for  their  use  or  cancellation.  (11)  The  use  of  graduated 
stubs  or  coupon  receipts  to  check  the  collection  of  money. 
(12)  The  establishment  of  a  complete  chain  of  accounting, 
from  the  inception  of  revenue  or  expense  throughout  the 
various  branches  of  the  city  to  the  Comptroller's  office, 
where  all  the  accounting  is  finally  centralized. 

"The  financial  operations  of  the  city  are  summarized 
in  the  monthly  report  compiled  in  the  Comptroller's 
office  not  later  than  the  twentieth  of  each  month,  for  the 
precedmg  month.  This  report  shows:  (i)  Balance  Sheet. 
The  financial  condition  of  the  city  at  the  end  of  the  month. 
Monthly  re-       as  Compared  with  the  same  month  of  the 

?mT  "  *  '**"  P^^^^^^  y^^y  ^^  ^^^  resultant  increases  and 

decreases  during  the  year.    The  Balance 

Sheet  is  so  classified  as  to  show  the  financial  condition 


'  I 


Tff^ 


228 


CHICAGO'S  ACCOUNTING  REFORM 


CHICAGO'S  ACCOUNTING  REFORM 


229 


I   ;i    :l 


I 


of   the  municipality  in   its  relation  to  the  City  Cor- 
porate, the  Trust  Funds,  the  Water  Works,  the  Schools 
and    the    Library.    Schedules    supporting    the  Balance 
Sheet  show  the  component  details  of  each  item  contained 
therein.     (2)  The  Revenue  '  and  Expenses  *  for  the  month, 
compared  with  the  same  month  of  the  previous  year,  and 
of  the  elapsed  period  of  the  current  fiscal  year,  compared 
with  the  corresponding  period  of  the  previous  year.     (3) 
The  Expenditures  authorized  by  the  appropriation  ordi- 
nance remaining  unexpended,  and  the  percentage  of  the 
appropriations  expended.    The  Revenue,  Expenses,  and 
Appropriations  are  shown  in  detail,  segregated,  first,  as 
between  City  Corporate,    the  Trust  Funds,  the  Water 
Works,  the  Schools  and  the  Library,  and,  second,  between 
Ordinary    Revenue    and    Expenses    and    Extraordinary 
Revenue  and  Expenses.    Ordinary  Revenue  represents 
the  income  from  taxation,  licenses,  fees,  etc.     Extraor- 
dinary Revenue  represents  income  which  must  be  set 
aside  or  reserved  for  special  uses  such  as  the  building  of 
schoolhouses,  the  payment  of  bonds  or  water  certificates, 
or  income  which  is  derived  from  a  decrease  in  the  fixed 
assets  of  the  city,  such  as  the  sale  of  buildings,  lands,  etc. 
Ordinary  Expenses  represent  the  amount  expended  in 
conducting  the  City  Government,  as  for  salaries  and  wages 
and  supplies  for  current  operation,  maintenance,  repairs, 
operation,   etc.    Extraordinary  Expenses  represent   the 
amount  expended  to  increase  the  fixed  assets,  such  as  the 
purchase  of  lands,  erection  of  new  buildings,  construction 
of  additional  sewers,  the  payment  of  bonds,  etc." 
The  same  report  also  tells  us  something  about  the  suc- 

*  Revenue  indicates  accruenients  of  revenue  renewable  accounts 
pertaining  to  a  fiscal  period,  whether  collected  or  to  be  collected. 

"  Expenses  indicate  the  expenses  of  the  city,  incurred  on  account  of 
the  period,  whether  these  expenses  have  been  paid  or  are  to  be  paid. 


cess  of  this  new  system  during  the  time  that  it  has  been 
in  operation.  "All  departments  of  the  City  Government 
have  been  operating  thereunder  during  the  past  year. 
The  change  from  the  old  to  the  new  method  was  accom- 
plished without  confusion  or  detriment  to  the  conduct 
of  public  business,  and  the  detailed  workings  of  the  new 
system  have  progressed  without  friction.  It  is  now  evi- 
dent that  the  system  has  proved  an  advantage  to  the  City 
Government;  that  it  has  improved  the  efficiency  of  indi- 
vidual employees  and  promoted  an  intelligent  and  inter- 
ested direction  of  their  efforts  by  departmental  heads." 
From  the  point  of  view  of  economy,  the  comptroller  also 
shows  that  during  the  past  year  there  has  been  a  reduction 
in  running  expenses  amounting  to  $72,630,  and  alludes  to 
this  decrease  in  expense  as  a  permanent  economy.     The 

Sa  in   effected   ^^^^S'^  ^^  various  departments  of  the  service 

brought  about  through  increased  efficiency 

and  reduction  of  clerical  force  are  given  in  detail,  as  follows: 

Civil  Service  Commission $3,750.00 

Bureau  of  Local  Improvements 3,240.00 

Police  Department 5,500.00 

Department  of  Supplies 1,800.00 

Fire  Department 2,400.00 

City  Clerk 5,100.00 

Boiler  Inspector 1,000.00 

Board  of  Examining  Engineers 900.00 

Comptroller's  Ofl&ce 4,600.00 

City  Collector 12,440.00 

Total  Corporate $40,730.00 

Public  Library  — 

Secretary's  Office $1,250.00 

Reference  Department 1,300.00 

Circulating  Department 2,560.00 

Total  Library $5,110.00 


^ 


h  '  ' 


TiiT' 


230  CHICAGO*S  ACCOUNTING  REFORM 

Water- Works  — 

Water  Pipe  Extension $8,000.00 

Pumping  Stations 6,300.00 

Collection  Division,  Water  Office 12,500.00 

Total  Water- Works $j6,8oo.oo 

Recapitulation  — 

Total  Corporate $40,730.00 

Total  Library 5,110.00 

Total  Water 26,800.00 

Total  reduction $72,640.00 

Moreover,  the  mayor,  by  official  acknowledgment,  has 
confirmed  the  first  judgment  of  the  accountants  as  to  the 
increase  in  revenue  which  would  be  effected 
by  an  efficient  system  of  central  control. 
Besides  an  increase  of  over  $600,000  in 
revenue  from  direct  taxation,  there  has  been  an  increase 
in  the  revenues  from  various  departments  of  government, 
as  follows: 


Increase  in 
revenues 


1902 

1901 

Increase 

T.irenses  .  ,  ^  .  .  .  .  ,  , 

^3.77o»735-37 

» 10,334-33 
111,105.96 

1 5>  740-42 

2,519.46 

75,265.30 

51,904.51 

127,564.64 

158,702.18 

860,642.64 

^3*633,017.73 
98,213.16 

88,303.93 
7,968.84 

1,454.76 
66,317.85 
27,818.95 

98,313.57 
151,013.40 

771,433.00 

*i37,7i7.64 
12,121.17 
22,802.03 

7,771.58 
1,064.70 

8,947-45 
24,085.56 
29,251.07 

7,688.78 
89,209.64 

Police  Justice  Courts 

House  of  Correction 

Police  Department 

Public  Pounds 

Department  of  Buildings 

Department  of  Electricity 

Department  of  Public  Works 
Insurance  Tax 

Other 

Total 

$5,284,514.81 

^4,943,855.19 

$340,659.62 

CHICAGO'S  ACCOUNTING  REFORM 


SSI 


The  total  of  decreased  expense  and  increased  revenues 
of  the  city  seems  to  be  close  to  a  million  dollars.  Without 
going  further  into  detail  more  than  to  refer  the  reader  to  the 
final  report,  it  may  be  said  that,  from  a  point  of  view  of 
municipal  reform,  the  new  system  of  accounts  has  laid  the 
foimdation  for  effective  administration,  and  that  the  reports 
based  on  this  system  give  to  the  citizen  a  well-classified 
digest  of  financial  results,  supplemented  by  schedules  in 
sufficient  detail  to  allow  the  citizen  to  obtain  a  compre- 
hensive knowledge  of  the  affairs  of  the  municipality. 

Before  undertaking  a  critical  examination  of  the  new 
system  for  the  purposes  of  the  second  inquiry,  it  may  be 
said  by  way  of  introduction  that,  at  the  time  the  work 
of  audit  and  reorganization  was  begun,  our  own  com- 
mittee had  not  yet  settled  its  general  accounting  programme, 
nor  had  we  definitely  formulated  our  schedules.  More- 
over, those  in  charge  of  the  Chicago  operation  were  re- 
quired to  act  promptly,  and  to  recommend  to  the  mayor 
and  council  a  definite  programme  for  such  final  action  as 
was  necessary  to  get  authority  to  make  needful  changes 
in  records  and  administrative  machinery.  It  was  June  24, 
1 901,  when  the  council  authorized  the  mayor,  comp>- 
troller,  and  chairman  of  the  Committee  on  Finance  to 
engage  the  services  of  an  independent  firm  of  account- 
ants. On  November  20,  1901,  Haskins  &  Sells  sub- 
mitted a  report  not  only  outlining  the  general  system  of 
municipal  accounts  to  be  followed,  but  also  furnishing 
detailed  schedules  defining  the  operations  of  the  system 
The  work  of  in  each  of  the  various  departments,  bureaus, 
audit  and  re-  and  offices  of  the  City  Government.  The 
organization  details  reported  went  so  far  as  to  prescribe 
all  the  necessary  books,  blanks,  and  reports.  In  prepar- 
ing the  general  outlines  of  the  plan,  one  member  of  our 
committee  was  brought  into  advisory  relation  with  the 


fl 


I  ■ 


232 


CHICAGO'S  ACCOUNTING  REFORM 


certified  public  accountants  in  control,  one  of  whom  was 
also  a  member  of  your  committee;  hence  the  new  plan 
had  the  direction  or  advice  of  two  of  our  members.  This 
report  covered  236  printed  pages,  and  included  a  re- 
vision of  all  ordinances  which  conflicted  with  the  pro- 
posed system  and  drafts  for  new  ordinances  required. 
On  December  23,  1901,  the  City  Council  passed  an 
ordinance  making  the  system  as  shown  in  their  report, 
"with  all  accompanying  exhibits  submitted,"  the  final 
accounting  and  auditing  system  of  the  city  of  Chicago. 

Another  fact  must  also  be  taken  into  account:  that, 
without  precedents  to  guide  and  to  govern,  those  who 
had  charge  of  the  Chicago  operation  had  to  face  local 
conditions  which  were  by  practice  traditional,  and  the 
inertia  of  a  body  of  administrative  agents  which  stood 
like  an  army  trained  to  tactics  that  they  well  understood 
but  which  the  accountants  in  charge  were  asking  them 
to  discard  for  new  ones.  Local  traditions,  local  ordi- 
nances and  local  statutes  were  to  be  reckoned  with.  The 
new  system  once  inaugurated  by  ordinance  and  fortified 
by  practice  of  a  large  administrative  body  must  stand  as 
placed  until  strong  reason  is  again  shown  for  change. 

While  the  schedules  of  the  committee,  therefore,  have 
been  undergoing  constant  change,  the  work  at  Chicago 
some  two  years  ago  assimied  a  permanent  form,  and  must 
be  regarded  in  the  light  of  its  creation.  It  may  be  further 
said  that  the  schedules  of  the  committee  adopted  on 
January  2,  1903,  have  been  drawn  from  the  accounting 
experience  of  members,  beginning  with  small  places  like 
Brookline,  Massachusetts,  and  extending  locally  over 
other  cities,  until  finally,  during  the  last  year  under  Ohio's 
code,  they  have  been  brought  to  the  test  m  apphcation 
to  all  cities  in  that  populous  State.  From  this  varied 
experience  the  members  of   the  committee   have  com- 


i 


CHICAGO'S  ACCOUNTING  REFORM 


283 


pleted  their  general  schedules  with  reference  to  municipal 
revenues,  expenditures  and  appropriations;  but  the 
schedules  and  statements  of  finaJ  condition,  as  shown 
in  the  balance  sheet  and  exhibits  ancillary  thereto,  have 
not  been  formally  taken  up.  This  part  of  this  work  is 
still  in  the  hands  of  a  sub-committee. 

With  these  explanations,  we  take  up  for  technical 
examination  the  system  of  accoimts  introduced  into  the 
city  of  Chicago.  Having  no  balance  sheet 
for  comparison,  except  that  which  is  to  be 
reported  by  the  sub-committee  at  this  ses- 
sion, the  one  worked  out  for  the  city  of  Chicago  seems 
to  have  such  special  value  that  it  is  incorporated  here: 

Corporate  Purposes  —  Comparative  General  Balance  Sheet  — 

December  31,  1902  and  1901 


Technical 
examination 


Assets 

1901 

1901 

Increase 

Decrease 

Current  Assets: 
Cash: 
In  hands  of  City  Treasurer 
for  Corporate  Pxirposes 

$37,098.35 

5,950.00 

144,505.68 

318,443.30 

$460,808.77 
5,000.00 

18,957.95 

251,860.55 
5,000.00 

$423,7io.4a 

Petty  cash  in  departments. . 

$950.00 
"5,54773 

66,582.75 

Paymaster 

Deposited  to  pay  matiiring 

bonds  and  coupons  — 

With  American  Exchange 

National     Bank,    New 

York 

With  Merchants'  Loan  and 
Trust  Company,Chicago 

Total  Cash  Corporate 
Purposes 

$505,997-33 
639,39a-49 

1.663,39704 

157,990.50 
11,643.81 

$741,627.27 

$235,629.94 

Accoimts  Receivable 

639,392.49 

Taxes  in  hands  of  county 
authorities  for  collection, 
after  deducting  amount 
of  anticipation  tax  war- 
rants issued  against  such 
taxes,  and  accrued  inter- 
est thereon 

2.076.895.08 

413.498-04 

Delinquent  taxes  of  1901,  in 
hands  of   County  Col- 
lector for  collection 

157,990.50 

Department  of   Supplies  — 
Warehouse  Stodt 

l2,i64X>8 

529-27 

Total  Current  Assets 

$2,978,412.17 

$2,830,686.43 

$147,725.74 

n 


\ 


»f!M' 


234 


CHICAGO'S  ACCOUNTING  REFORM 


Corporate  Purposes  —  Comparative  General  Balance  Sheet 
December  31,  1902  and  1901 — Continued 


Assets 

1902 

1901 

Increase 

Decrease 

Contingent  Assets: 

Uncollected  sewer  tax 

$5,345-80 

596.78 
6,702.84 

$5,345.80 

596.78 
6,702.84 

Norwood  Park   tax   certifi- 
cates   

P.  Radieski  —  Shortage 

Total  Contingent  As- 
sets   

$12,645.42 

$12,645.42 

Total     CuTTpnt     sLT\(\ 

Contingent  Assets. . 

$2,991,057.59 

$2,843,331.85 

$147,725.74 

Fixnd  Assets: 

Real  estate  (Schedule  No.  2) 

$2,265,332.39 
4,101,248.25 
4,503,312.13 

25,247.04 

$2,119,227.24 
4,152,407.40 
4,392,036.27 

25,247.04 

$146,105.15 

Buildings  (Schedule  No.  2) 

$51,159-15 

Equipment  (Schedule  No.  2) 

111,275.86 

Mortgages     and     wharfing 
privileges  (Schedule  No. 
3) 

Total  Fixed  Assets... 

$10,895,139.81 
9,824,290.01 

$10,688,917.95 
9,512,574.46 

$206,221 .86 
311,715.55 

Excess   of   Deferred    liabilities 
and  Bonds  over  Fixed 
Assets 

Total 

$20,719,429.82  $20,201,492.41 

$517,93741 

Grand  Total 

$23,710,487.41 

$23,044,824.26 

$665,663.15 

Corporate  Purposes  —  Comparative  General  Balance  Sheet  — 

December  31,  1902  and  1901 


LiABn-rriEs 

1902 

1901 

Increase 

Decrease 

Current  Liabilities: 
Audited  vouchers 

$426,945.96 

8,600.00 

309,843-30 
144,505.68 

6,155.64 

$1,119,091.76 

19,700.00 

237,160.55 

18,957.95 

6,254.19 

331-53 

810.33 

336.00 

4,050.00 

1,000.00 

10,165.05 

6.59 

$72,683.75 
"5,547-73 

$692,145.80 
11,100.00 

Bonds  matured  and  unpaid. . 
Interest  due  and  unpaid 

Pay-rolls  impaid 

Wages  imclaimed 

Warrants  unclaimed 

98.55 

Time  warrants  unpaid 

810.33 
336.00 

3,965.09 

331-53 

Boiler  Inspector — Temporary 
Account 

Peojde's  Gas  Lijht  and  Coke 
Company  —  Equipment    of 
Street  Lamps  Account 

85.00 

H.  C.  McDonald  —  Removal 
of  Dead  Anim.il  Contract . . 

Bid  and  guarantee  deposits  . . 

64950 
6.59 

9,515.5s 

Subscriptions  to  public  baths. . 

CHICAGO'S  ACCOUNTING  REFORM 


235 


Corporate  Purposes  —  Comparative  General  Balance  Sheet  — 
December  31,  1902  and  1901  —  Qmtinued 


Liabilities 

190a 

1901 

Increase 

Decrease 

Vehicle  and  Wcyde  tax  repay- 
able   

$73350 

25,179.44 

402.88 

6,696.70 

14,248.98 

240,243.01 

225,163.81 
43,467.59 

$734-25 

26,744-35 

508.46 

275-92 
24,380.44 

174,335-59 

$.75 

1,564.81 

105.58 

Suspense  Account 

Uniform  Stock  Account 

City  Employees'   Transporta- 
tion Account  

$6,420.78 

Judgments  and  costs,  appro- 
priated for 

10,131.46 

Reserve  for  cost  and  deficiency 
in  the  collection  of  taxes  . . . 

Reserve  for  uncompJeted  con- 
tracts and  unexpended  ap- 
pH-opriations  of  1902  (Sched- 
ule No.  i) 

65.907.42 

225,163.81 
43,467.59 

Reserve  for  doubtful  accounts 

Total  Current  Liabili- 
ties  

$1,457,954.00 
1,533,103.59 

$1,644,842.95 
1,198,488.90 

$186,888.95 

Excess  of  Current  and  Contin- 
gent   Assets    over    Current 
Liabilities 

$334,614.69 

Total 

$2,991,057.59 

$2,843,331.85 

$147,725-74 

Deferred  Lial»Iities: 
City  of  Chicago  — Trust  Funds 
Account 

$1,383,232.53 
4,213,197.29 

$1,183,682.83 
3,547,809.58 

199,549.70 
665,387-71 

Judgments 

•     ■•a      ■••«■* 

Total    Deferred   Lia- 
bilities   

$5,596,429.82 

835,000.00 

496,000.00 

2,124,500.00 

2,605,500.00 

895,000.00 

7,000.00 

3,643,000.00 

4,517,000.00 

$4,731,492-41 

835,000.00 

496,000.00 

2,124,500.00 

2,605,500.00 

895,000.00 

7,000.00 

3,990,000.00 

4,517,000.00 

$864,937.41 

City  of  Chicago  Bonds: 
Municipal 

1.  unnel 

Seweraee  Loan 

River  Improvement 

School 

Village  of  Rogers  Park 

Water 

World's  Fair  Bonds . ........[. 

$347,000.00 

Total  Bonds  (Sched- 
ule No.  4) 

$15,123,000.00 

$15,470,000.00 

$347,000.00 

Total   Deferred  Lia- 
bilities and  Bonds . . 

$20,719,429.82 

$20,201,492.41 

$517,937.41 

Grand  Total 

$23,710,487.41 

$23,044,824.36 

$665,663.15 

Referring  to  these,  several  items  may  be  mentioned: 
(i)  Attention  is  called  to  the  title  "cash"  imder  current 
assets  which,  it  is  to  be  noted,  is  subdivided  to  show  the 


236 


CHICAGO'S  ACCOUNTING  REFORM 


The  balance 
sheet 


several  departments  or  funds  to  which  the  cash  belongs; 
(2)  the  last  item  imder  current  assets,  "department  of 
supplies  —  warehouse  stock"  may  be  open  to  question. 
Technical  objection  may  possibly  be  raised  as  to  whether 
or  not  warehouse  stock  is  to  be  considered  a  current  asset, 
against  which  current  liabiUties  may  be  set  off;  (3)  it  is 
to  be  noted  that  under  the  headmg  "contingent  assets," 
the  items  are  set  up  m  detail;  (4)  another 
important  feature  is  found  under  the  title 
"fixed  assets,"  from  which  it  appears  that 
complete  supplementary  schedules  of  "real  estate,"  "build- 
ings," "equipment,"  and  "mortgages"  are  made  a  part  of 
the  report.  These  schedules,  under  the  ordinance,  are  re- 
quired and  serve  as  inventories  of  municipal  properties, 
which  are  pubUshed  for  the  information  of  the  people. 

On  the  liabilities  side  of  the  balance  sheet  it  is  to  be 
noted  (i)  that  the  current  Uabilities  are  minutely  classified; 
(2)  that  reserves  have  been  set  up  against  current  assets 
—  (a)  "for  cost  and  deficiency  in  collection  of  taxes; 
(b)  for  uncompleted  contracts  and  imexpended  appro- 
priations of  1902;  (c)  for  doubtful  accounts;"  it  further 
appears  that  the  second  reserve  referred  to  is  itemized 
on  pages  48  and  49  of  the  Report  of  the  Comptroller, 
and  the  schedule  there  foimd  is  one  of  the  forms  pre- 
scribed under  the  new  system  adopted  by  the  city;  (3) 
under  the  headmg  "deferred  liabilities"  are  found  all 
of  the  over-drafts  on  "trust  funds"  and  "judgments" 
for  which  the  city  is  liable;  (4)  the  bonded  debt  of  the 
city  is  set  out  in  full  and  classified  and  further  illuminated 
by  schedule,  which  is  also  a  required  form;  (5)  the  sur- 
plus account  is  also  fully  illuminated  by  schedule.  Look- 
ing to  the  balance  sheet  as  a  whole,  it  conforms  to  the 
best  canons  of  accountmg,  and  is  in  thorough  alignment 
with  the  work  of  the  committee,  so  far  as  it  has  gone. 


CHICAGO'S  ACCOUNTING  REFORM 


237 


It  is  here  set  forth  for  the  purposes  of  comparison  with 
the  balance  sheet  used  in  Ohio  and  in  other  operations 
to  be  reported  by  others  at  this  session. 

The  schedules  of  the  Conmiittee  on  Uniform  Municipal 
Accounts,  adopted  January  2  last,  reduce  revenues,  expen- 
ditures, and  appropriations  to  the  same  basis  of  general 
classification.  The  report  of  Mr.  Chase  on  the  sched- 
ules adopted  by  Ohio  as  a  basis  for  uniform  municipal 
accoimting  in  that  State  shows  the  same  classification. 
In  adopting  the  schedules  for  the  city  of  Chicago  this 
uniformity  of  classification  is  not  observed.  The  "rev- 
enues," "expenses,"  and  "expenditures  authorized  by 
appropriation  ordinances"  each  have  a  separate  group- 
ciassification  ing.  Revenues  are  divided  into  (i)  taxes, 
of  revenue  (2)  licenses,  and  (3)  miscellaneous.  Under 
accounts  y^Yiox  is  called  miscellaneous  revenue,  how- 

ever, the  various  departments  of  government  are  set  out 
in  detail,  so  that  the  several  items  and  summaries  may  be 
redistributed  under  the  classification  proposed  by  your 
committee  for  purposes  of  comparative  study : 

Miscellaneous  Revenue  —  Corporate  Purposes  by  Departments 
AND  Months  —  Year  Ended  December  31,  1902 


Dept. 
No. 


o 
I 

2 

3 
4 

5 
6 

8 

9A 


Account 


Mayor's  Office  —  Auctioneers,  Permits 

City  Clerk  —  Miscellaneous 

Corporation  Counsel's  Office 

Prosecuting  Attorney's  Office 

City  Attorney's  Office 

Department  of  Finzince  — Comptroller's  Office.  . . 

Finance  Department  —  City  Treasurer 

Finance  Department  —  Miscellaneous 

Police  Department  —  Special  Details  and  Appoint- 
ments  


1 


f 
/' 

I  I 


tlBH 


^ 


238 


CHICAGO'S  ACCOUNTING  REFORM 


Miscellaneous  Revenue  —  Corporate  Purposes  by  Departments 
AND  Months — Year  Ended  December  31,  1902 —Continued 


Dept. 
No. 


Account 


9  C  Police  Department  —  Miscellaneous 

lo  A  Police  Justice  Courts  —  Fines  and  Forfeitures . . 

10  B  Police  Justice  Courts  —  Miscellaneous 

11  A  House  of  Correction  —  Fines 

II  B  House  of  Correction  —  Sale  of  Produce 

II  C  House  of  Correction  —  Laundry  Work 

II  D  House  of  Correction  —  Boarding  Prisoners 

II  E  House  of  Correction  —  Miscellaneous 

13  A  Public  Pounds  —  Dogs 

13  B  Public  Pounds  —  Other 

14  Fire  Department 

ISA  Department  of  Buildings  —  Permits 

15  B  Department  of  Buildings  —  Inspection 

16  A  Health  Department  —  Inspection 

16  C  Health  Department  —  Miscellaneous 

17  B  Department  of  Inspection  —  Boilers 

17  D  Department  of  Inspection  —  Weights  and  Measures 

17  E  Department  of  Inspection  —  Gas 

17  F  Department  of  Inspection  —  Oil 

17  G  Department  of  Inspection  —  Automobiles 

17  I  Department  of  Inspection  —  Mist  ellaneous 

19  A  Department  of  Public  Works  —  Map  Fees 

19  C  Department  of  Public  Works  —  Bureau    of    Engi 

neering,  Permits 

19  E  Department  of  Public  Works  — Bureau  of  Engi- 
neering, Bridges  and  Viaducts 

19  F  Department  of  Public  Works  —  Bureau  of  Engi- 
neering, Miscellaneous 

19  G  Department  of  Public  Works  —  Bureau  of  Streets, 
Permits 

19  H  Department  of  Public  Works-  Bureau  of  Streets, 
Dumps 

19  I  Department  of  Public  Works  —  Bureau  of  Streets, 
Sidewalk  Certificates 

19  K  Department  of  Public  Works  —  Bureau  of  Streets, 
Miscellaneous 


CHICAGO'S  ACCOUNTING  REFORM 


239 


Miscellaneous  Revenue  —  Corporate  Purposes  by  Departments 
AND  Months  — Year  Ended  December  31,  1902  — Continued 


Dept. 
No. 


19  N 

20  A 
20  B 
20  C 

20  D 

21  A 

21  B 
23  A 
23  B 
24* 

25 

31 


loAt 
14 

17  B 
17  G 

23  A 
23  B 
25 

30 


Account 


19  L  Department  of  Public  Works  —  Bureau  of  Sewers, 
Permits 

Department  of  Public  Works  — Bureau  of  Sewers, 
Miscellaneous 

Department  of  Electricity  —  Sale  of  Power 

Department  of  Electricity  —  Permits 

Department  of  Electricity  —  Inspection 

Department  of  Electricity  —  Miscellaneous 

City  Real  Estate  and  Buildings  —  Rents  and  Com- 
pensation 

City  Real  Estate  and  Buildings  —  Miscellaneous. . 

Licenses  —  Saloon  (Statement  "A") 

Licenses— Other  (Statement  "A") 

Franchise  Tax 

Insurance  Tax 

Markets 

Miscellaneous 

Gross  Miscellaneous  Revenue 

Deductions  from  Miscellaneous  Revenue 

Police  Court  —  Fines  and  Forfeitures 

Fire  Department  —  Paid  to  Firemen's  Pension 
Fund 

Department  of  Inspection  —  Boilers  —  Expense  . . 

Department  of  Inspection  —  Automobiles  —  Ex- 
pense   

Licenses  —  Saloons  —  Paid  to  Pension  Fund 

Licenses  —  Other  —  Paid  to  Pension  Fund 

Two  Per  Cent  Insurance  Tax  —  Paid  to  Firemen's 
Pension  Fund 

Markets  —  Expense  of  Dayton  Street  Market 

Total  Deduction 

Net  Miscellaneous  Revenue 


*  Includes  unpaid  warrant  for  collection  against  the  People's  Gas  Ught  and  Coke 
Co.  amounting  to  $375,000. 

t  Paid  to  Erring  Women's  Refuge,  House  of  the  Good  Shepherd,  Illinois  Humane 
Society  and  the  Police  Pension  Fund. 


'  i 

•ir 

>  J 


240  CHICAGO'S  ACCOUNTING  REFORM 

Licenses  are  also  classified.  The  city  of  Chicago  has  a 
more  thorough  and  exhaustive  statement  than  is  foimd  in 
the  committee's  report. 

Licenses  Issued  by  Months  and  Classes 


Description 


Amusements 

Auctioneers 

Bakers 

Bar  Permits 

Billiards  and  Pool 

Bowling  Alleys 

Brewers  and  Distillers 

Bill  Posters 

Boats 

Brokers 

Butchers 

Cigarettes  

Dogs 

Dog  Pounds 

Druggists 

Gun  Powder 

Hacks 

Hacks  —  Livery 

Hospitals 

Ice  Wagons 

Junk  Dealers 

Liquors  —  Malt —  Wholesale 

Liquors  —  Spirit 

Liquors  —  Vinous 

Lumber  Yards 

Milk  Dealers 

Milk  Peddlers 

Omnibus 

Pawnbrokers 

Peddlers  —  Foot 

Peddlers  — Oil 


CHICAGO'S  ACCOUNTING  REFORM  241 

Licenses  Issued  by  Months  and  Classes— Continued 


Descbiption 


Peddlers  —  Wagon . . 
Peddlers  — Wood... 

Real  Estate 

Rendering 

Roofers 

Runners 

Saloons 

Scales  —  Public , 

Scavengers 

Second-hand  Dealers. 
Shooting  Galleries  . . . 

Smoked  Meats 

Soap  Factories 

Street  Cars 

Tanneries 

Undertakers 

Wagons  —  Junk 

Wagons  —  One-horse 
Wagons  —  Two-horse 


The  schedule  of  expenses  for  the  city  of  Chicago  is 
arranged  as  follows: 

I.  Corporate  Purposes  — 

1.  General  government,  including  executive,  legislative  and 

administrative  departments. 

2.  Public  Safety,  including  police  and  fire  departments,  hos- 

pitals, police  courts,  prisons,  reformatories,  etc. 

3.  Public   Works,   including  streets,   sewers,   and  all  works 

except  the  water-works. 

4.  Public  recreation  and  art. 

5.  Miscellaneous. 

II.  Water-works  —  Taken    out   of  the   department  of  "Public 
Works  "  by  the  adoption  of  the  new  system. 

III.  Education  —  Made  a  separate  department  by  law. 

IV.  Library  —  Also  on  a  separate  financial  foundation. 

17 


242 


CHICAGO'S  ACCOUNTING  REFORM 


Separate  schedules  are  given  for  "ordinary"  and 
"extraordinary,"  showing  expenses  under  each  class. 
Classification  ^Y  comparing  these  schedules  with  those 
of  expense  prepared   by   the   Committee   on   Uniform 

accounts  Municipal  Acccounting,  it  will  be  found  that 

the  outline  of  Chicago's  accounts  has  a  quite  dififerent 
distribution  imder  general  titles,  but  that  in  nearly  every 
case  the  sub-titles  may  be  so  arranged  as  to  conform 
almost  exactly  to  the  plan  adopted  at  our  last  meeting. 
In  Chicago,  the  electric  light  plant  is  retained  under  the 
general  department  of  "Public  Works"  for  legal  and 
local  reasons  —  this  being  comparatively  unimportant,  and 
the  service  being  organized  by  law  under  this  depart- 
ment. For  like  reason  it  will  be  found  that  the  "fire  and 
police  telegraph"  is  retained  under  the  department  of 
electricity,  although  it  is  set  up  as  a  separate  title;  this 
may  be  reclassified,  and,  for  comparison,  taken  out  and 
put  under  the  class  suggested  by  the  committee.  No 
division  is  made  in  the  new  Chicago  plan,  in  the  general 
classification  between  "protection  to  life,  health,  and 
property"  and  "pubUc  charities  and  corrections."  Special 
sub-classification,  however,  is  so  thoroughly  preserved 
that  the  various  summaries  may  be  reclassified  imder  the 
committee's  outlines.  On  the  subject  of  "appropriation 
and  expenditure,"  the  budgetary  arrangements  of  Chicago 
are  such  that  appropriations  lapse  at  the  expiration  of 
each  year,  and  the  exhibit,  as  set  forth  in  the  new  system, 
seems  to  be  needed  in  Chicago,  a  wholesome  suggestion 
for  other  cities  to  follow. 

Taking  the  new  system  of  accoimting  adopted  by  the 
city  of  Chicago,  as  a  whole,  it  is  a  masterly  piece  of  work, 
and  will  serve  as  a  milestone  in  the  movement  toward 
municipal  reform.  To  those  interested  in  better  govern- 
ment, it  may  be  said  that  Chicago  has  taken  an  advanced 


CHICAGO'S  ACCOUNTING  REFORM  243 

position  worthy  of  emulation  by  other  large  municipalities. 
Conclusion  ^^  ^^^^^  ^^^  ^re  interested  in  municipal 
accounting  as  a  science,  it  is  encouraging 
to  find  that  the  schedules  adopted  by  the  city  of  Chicago, 
while  conforming  to  legal  and  local  requirements,  are  so 
nearly  in  harmony  with  those  in  use  by  Ohio  under  its 
new  code  and  by  the  various  municipalities  that  have 
undertaken  new  systems  of  accounting. 


CHAPTER  XVI 

The  System  of  Accounts  and  Statistics  of  the  City 

OF  New  York* 

Stating  the  purposes  for  which  the  Advisory  Com- 
mission on  Finance  and  Taxation  was  appointed,  the 
The  purposes  mayor  requested  (i)  an  examination  into 
of  the  invest!-  the  financial  methods  of  the  city  and  (2) 
gation  ^jjg^i-  ^  ^Yan  be  reported  for  improving  them. 

More  specially,  the  commission  was  asked  to  report  a 
plan  looking  toward  "the  reorganization  of  the  city's 
method  of  keeping  and  stating  accounts." 

Following  the  lines  of  the  first  request  a  detailed  exami- 
nation was  made  of  the  administration  and  accounting 
methods  employed  in  five  departments,  viz.:  (i)  The 
Department  of  Finance,  (2)  the  Department  of  Docks 
and  Ferries,  (3)  the  Department  of  Street  Cleaning,  (4) 
Bellevue  and  Allied  Hospitals,  and  (5)  the  Board  of  Edu- 
cation. 

In  selecting  these  departments  the  aim  was  to  take 
those  which  were  tjrpical  —  the  first  being  the  department 
of  general  financial  control,  the  second  be- 
ing in  the  nature  of  a  mimicipal  industry, 
the  third,  a  branch  of  general  administra- 
tion with  an  incidental  revenue,  the  fourth  having  its 


Departments 
examined 


1  Report  to  the  Sub-Committee  on  Accounting  and  Statistics  of  the 
Mayor's  Advisory  Commission  on  Finance  and  Taxation,  appointed 
by  Mayor  McClellan,  January,  1906,  the  draft  of  which  was  prepared 
by  the  chairman. 

144 


NEW  YORK'S  SYSTEM  OF  ACCOUNTS       245 

expenses  and  operations  controlled  by  an  independent 
board,  the  fifth,  an  administrative  unit,  organized  as  a 
separate  corporation  entitled  to  a  distinct  revenue  and 
having  control  over  the  properties  used  as  well  as  over 
expenditures  and  operation. 

A  detailed  description  of  methods  of  conducting  busi- 
ness and  of  accounting  in  the  first  four  of  the  departments 

Detaaed  reports  'f 'if  }""  'I  ^^^mitted.  The  system  em- 
on  method  ployed  m  the  Board  of  Education  was 
examined  in  detail,  but,  for  reasons  later 
given,  only  the  conclusion  reached  and  a  general  discus- 
sion of  the  administrative  needs  of  the  department  are 
herewith  presented  (Chapter  XVII). 

GENERAL  CRITICISM  OF  THE  SYSTEM 

The  administrative  purpose  of  accounts  and  statistics 
being  that  of  obtaining  intelligent  control  over  the 
Administrative  activities  of  an  institution,  the  nature  of  the 
purpose  of         accounts   and   statistics   to   be   kept   must 

stettetus  ^  ^^Pf^^  ^^  ^^^  different  forms  of  adminis- 
trative control  to  be  exercised  and  on  the 
nature  of  the  information  needed  by  those  in  responsible 
position,  for  the  exercise  of  official  discretion  and  for 
rendering  a  report  of  their  stewardship.  Under  the 
charter  of  greater  New  York  there  are  essentially  two 
forms  of  administrative  control  to  be  exercised,  viz.: 
(i)  Financial  Control  and  (2)  Executive  or  Operative 
Control. 

The  organization  within  the  corporation  for  the  exer- 
Charter  pro-  ^^^^  ^^  financial  control  is  a  group  of  offices 
visions  for  closely  associated  with  the  Department  of 
&^anciai  con-  Finance.  Descriptively  these  are:  (i)  an 
office  or  division  for  the  collection  of 
revenue,  for  the  exercise  of  accounting  control,  and  for 


I  ll 


246       NEW  YORK'S  SYSTEM  OF  ACCOUNTS 

the  issue  of  and  account  for  bonds  and  obligations  of  the 
city,  at  the  head  of  which  is  the  comptroller;  (2)  the  City 
Treasury,  at  the  head  of  which  is  the  city  chamberlain; 
(3)  Trustees  for  the  selection  and  approval  of  depositories 
of  the  funds  of  the  city,  composed  of  the  mayor,  the 
comptroller,  and  the  chamberlain;  (4)  Commissioners  of 
the  Sinking  Fund,  composed  of  the  mayor,  the  comptroller, 
the  chamberlain,  the  president  of  the  Board  of  Aldermen, 
and  the  chairman  of  the  Finance  Committee  of  the  Board 
of  Aldermen;  and  (5)  the  Board  of  Estunate  and  Appor- 
tionment, composed  of  the  mayor,  the  comptroller,  the 
president  of  the  Board  of  Aldermen,  and  the  presidents 
of  the  boroughs  of  Manhattan,  Brooklyn,  Bronx,  Queens, 
and  Richmond. 

The  executive  power  of  the  city  is  located  in  the  mayor 
and  heads  of  departments.  Executive  control  is  pro- 
vided for  through  the  indejoendent  election  of  a  mayor 
and  through  a  form  of  corporate  organization  which 
gives  the  mayor  the  power  to  "appoint  the  heads  of 
departments  and  all  commissions,  except  as  otherwise 
provided,"  and  to  "appoint  all  members  of  any  board 
or  commission  authorized  to  superintend  the  erection  or 
Charter  pro-  repau*  of  any  buildmg  belonging  to  or  to  be 
visions  for  ex-  paid  for  by  the  City"  (§118).  In  last 
ecutive  control  analysis,  responsibility  for  the  character  of 
executive  control  exercised  lies  with  the  mayor.  Section 
95  provides:  "The  Mayor  may,  whenever  in  his  judg- 
ment the  public  interests  shall  so  require,  remove  from 
office  any  pubhc  officer  holding  office  by  appointment 
from  a  Mayor  of  The  City  of  New  York,  except  members 
of  the  Board  of  Education,  and  Aqueduct  Commissioners, 
Trustees  of  the  CoUege  of  The  City  of  New  York,  and 
Trustees  of  Bellevue  and  Allied  Hospitals,  and  except 
also  judicial  officers  for  whose  removal  other  provision  is 


NEW  YORK'S  SYSTEM  OF  ACCOUNTS        247 

made  by  the  Constitution."  Having  reference  to  the 
exercise  of  control,  it  is  made  the  duty  of  the  mayor  (Sec- 
tion 115  of  the  city  charter):  (i)  "to  keep  himself  in- 
formed of  the  doings  of  the  several  departments";  (2)  "to 
communicate  to  the  Board  of  Aldermen,  at  least  once  in 
each  year,  a  general  statement  of  the  finances,  government 
and  improvements  of  the  City";  (3)  "to  recommend  to 
the  Board  of  Aldermen  all  such  measures  as  he  shall  deem 
expedient";  (4)  "to  be  vigilant  and  active  in  causing  the 
ordinances  of  the  City  and  the  laws  of  the  State  to  be  exe- 
cuted and  enforced,"  and  for  that  purpose  it  is  provided 
that  he  may  "call  together  for  consultation  and  coopera- 
tion any  or  all  of  the  heads  of  departments." 

The  system  of  accounting  needed  by  the  city  as  a  means 
of  exercising  the  control  contemplated  by  the  charter  of 
organization  should  provide  for  accurate  and  complete 
knowledge  with  respect  to:  (i)  the  audit  and  account  of 
revenues  accrued  as  well  as  revenues  collected,  and  rev- 
System  of  ac-  ^^^f «  in  arrears;  (2)  the  audit  of  all  claims 
counts  needed  against  the  city  growing  out  of  expenses  of 
con^""*^  current  operations  as  well  as  capital  out- 
lays; (3)  a  complete  and  accurate  record  of 
bonds  and  other  corporate  issues  and  obligations  by  the 
city,  together  with  such  information  pertaining  to  the 
city  debt  as  will  enable  the  comptroller  and  the  Board 
of  Estimate  and  Apportionment  to  know  when  the  legal 
limit  of  indebtedness  is  reached;  (4)  complete  and  accu- 
rate records  of  receipts  and  disbursements  by  funds  and 
appropriations  as  a  means  of  protecting  the  fidelity  of 
those  entrusted  with  the  keeping  of  the  public  funds  and 
the  authorized  disbursement  of  the  same;  (5)  a  record 
or  list  of  transactions  by  depositories,  for  the  information 
of  the  trustees  for  the  selection  of  depositories;  (6)  a  full 
and  true  account  of  the  sinking  fund  to  protect  the  fidelity 


-=SlSi 


I 


248       NEW  YORK'S  SYSTEM  OF  ACCOUNTS 

of  the  Commissioners  of  the  Sinking  Fund  and  as  a  means 
of  enabling  them  to  exercise  the  discretion  required  of 
this  office;  (7)  such  a  record  and  report  of  operative 
needs,  operative  expenses,  capital  needs,  and  capital  out- 
lays in  the  departments  as  will  enable  the  Board  of  Esti- 
mate and  Apportionment  to  exercise  intelligent  judgment 
with  respect  to  the  apportionment  and  appropriation  of 
the  revenues  of  the  city  to  the  several  ad  ministrati^^e  pur- 
poses; (8)  such  general  controlling  accounts  giving  readily 
and  accurately  and  clearly  an  intelligent  view  of  the 
city's  true  financial  position,  in  order  that  the  public  may 
have  a  basis  for  investment  judgment  and  thus  enabling 
the  city  to  dispose  of  its  bonds  and  corporate  stock  to  the 
highest  advantage. 

DEFECTS  IN  THE  SYSTEM  OF  ACCOUNTS  LOOKING  TOWARD 

FINANCIAL  CONTROL 

Examining  the  accoimts  of  the  city  of  New  York  for 
information  necessary  to  financial  control,  the  first  defect 
to  be  noted  pertains  to  control  over  revenue.  In  the 
An  imperfect  ^^t  place  the  Controlling  accounts  of  the 
account  of         city  only  imperfectly  take   cognizance    of 

revenue  ac-  revenue  accruals,  i.e.y  the  taxes  and  other 
cruals  1 

revenues  accrued  are  not  set  up  in  the 
general  accounts  as  assets,  but  are  taken  up  on  the 
basis  of  collections.  The  result  is,  that  neither  officers 
of  financial  control,  nor  the  city's  creditors,  nor  the 
people,  have  before  them  an  accurate  current  account 
of  revenues  uncollected.  In  the  accounts  of  the  city 
chamberlain  there  may  be  kept  a  true  statement  of 
revenue  receipts  by  sources  and  a  distribution  of  these 
to  the  proper  fimds.  It  is  unnecessary  to  duplicate  these. 
The  need  for  revenue  accounts  in  the  office  of  the  comp- 
troller is  for  control.    But  financial  control  must  be  to 


NEW  YORK'S  SYSTEM  OF  ACCOUNTS       249 

small  purpose  unless  the  eye  of  the  comptroller  is  kept 
on  revenue  assets  still  to  be  realized.  This  supervision  is 
important  in  order  that  there  may  be  prompt  and  correct 
report  of  the  amount  of  current  revenue  assets  overdue; 
the  amount  of  each  class  in  the  hands  of  the  city  marshal 
for  collection  and  the  period  to  which  they  belong;  the 
amount  of  each  class  in  the  hands  of  the  Law  Department 
for  collection  and  the  periods  to  which  they  belong;  the 
amounts  of  each  class  in  the  hands  of  the  Bureau  of  Assess- 
ments and  Arrears  and  the  periods  to  which  they  belong; 
the  amount  of  each  class  of  revenue  assets  realized  on 
by  execution  and  sale  and  the  period  to  which  these  assets 
belong;  their  present  value;  and  the  amount  of  each  class 
of  revenue  loss  each  year  on  account  of  failure  to  collect. 
All  of  this  information  is  proper  subject  of  controlling 
account  and  current  monthly  report  from  the  genersd 
books  of  the  city. 

In  this  relation  it  is  to  be  noted  that  there  is  no  uniform 
system  of  accounts  of  Assessments  and  Arrears,  the  ac- 
counts of  the  boroughs  examined  (Manhattan  and  Brook- 
lyn) being  on  a  dififerent  basis.  Of  these,  the  books  of 
the  Borough  of  Brooklyn  were  in  the  better  condition, 

Revenue  books  ^^^  ^^  ^^^^  ^^  ^^^  Borough  of  Manhattan 
not  in  control  not  having  been  balanced  since  1898.  In 
and  not  cur-      the  department  of  water  supply,  the  books 

rently balanced       ri    j  ^      'xi.  rr-y» 

of  ledger  account  with  consumers  have  never 
been  balanced.  The  city  relies  on  a  system  of  occasional 
check  on  the  entries  in  books  representing  miUions  of 
assets  of  the  city,  as  a  result  of  which  it  is  possible  for 
entries  to  be  made  relieving  charges  on  property,  or 
for  payments  to  be  made,  without  proper  account,  and 
for  such  mistake  or  fraud  to  go  undiscovered  for  such  time 
as  to  hold  out  a  constant  inducement  to  civil  servants 
having  access  to  the  books  to  become  dishonest. 


250       NEW  YORK'S  SYSTEM  OF  ACCOUNTS 

Moreover,  the  accounts  representing  special  assessments 
are  opened  and  closed  without  knowledge  on  the  part  of 
the  comptroller's  office  as  to  the  actual  condition  of  the 
special  assessment  with  which  the  account  is  kept.  At 
times  the  account  is  closed  before  the  collections  are  made, 
in  other  mstances  it  remains  open  after  assessments  have 
been  realized  on. 

Reserving  criticism  on  the  classification  of  expenditures 
(acceptmg  the  system  m  vogue),  it  is  to  be  observed  that 
there  is  a  multiplication  of  records  of  expenditure  which 
is  not  only  unnecessary  and  useless  but  which  is  confusing 
and  expensive.  The  present  basis  of  expenditure  account- 
ing is  *' funds  and  appropriations."  The  information 
obtamed  from  such  accounts  is  primarily  of  use  in  obtain- 
ing financial  control  over  the  treasury,  and  for  the  guidance 
of  the  Board  of  Estimate  and  Apportionment  in  making 
comparison  of  actual  expenditures  with  amounts  appor- 
tioned. Instead  of  satisfying  the  demand  for  this  infor- 
Muitipiication     mation  through  the  accounts  of  the  treasury 

:IpeS^'  ^^  '^^^l^S^  *°  accounting  control  in  the 
ofece  of  the  comptroller,  this  ''  fund  account- 
ing" extends  from  the  treasury  through  the  office  of  the 
comptroUer  to  the  departments  —  fund  accounts  being 
thereby  kept  in  triplicate  and  in  some  mstances  in  quad- 
ruplicate and  even  greater  multipHcity.  From  the  point 
of  view  of  results  obtained,  a  large  part  of  the  work  of 
the  present  clerical  staff  in  the  department  is  therefore 
unnecessary.  A  notable  instance  of  this  purposeless 
restatement  of  the  same  facts  and  of  the  useless  waste 
of  effort  in  accounting  with  funds  and  appropriations  is 
found  in  the  books  of  accoimt  of  Bellevue  and  Allied 
Hospitals.  Aside  from  the  distribution  of  the  expendi- 
tures of  the  department  on  the  books  of  the  treasurer  to 
the  proper  fund  and  appropriations,  and  in  like  manner 


and  statistics 
needed  by 
board  of  esti- 
mate and  ap- 
portionment 


NEW  YORK'S  SYSTEM  OF  ACCOUNTS       251 

on  the  accoimts  of  the  comptroller,  they  are  distributed 
five  times  to  the  same  appropriation  accounts  on  the 
books  of  the  department. 

From  the  point  of  view  of  accounting  control,  the  defect 
of  multiplication  is  not  as  serious  as  the  lack  of  accounts 
through  which  information  may  be  obtained  currently 
for  the  financial  control  to  be  exercised  by  the  Board  of 
FaUure  to  pro-  Estimate  and  Apportionment.  This  im- 
vide  accounts  portant  body  has  before  it  very  inadequate 
information  for  the  intelligent  discharge  of 
its  duties.  The  character  of  the  accounts 
and  statistics  necessary  for  good  judgment 
as  to  operative  needs  and  capital  outlays  in 
the  several  departments  and  divisions  of  municipal  ser- 
vice will  be  commented  on  later  in  detail.  But  in  this 
relation  it  may  be  said  that  the  effect  of  this  lack  of  intelli- 
gence in  the  work  of  the  board  is  that  appropriations  are 
commonly  based  on  custom  and  practice  or  on  an  appor- 
tionment which  looks  to  past  expenditures  rather  than 
to  present  or  future  needs,  and  this  too  without  any  ade- 
quate knowledge  as  to  whether  past  expenditures  have 
been  either  wisely  or  economically  made. 
Attention  was  recently  called  to  the  condition  of  the 

Defects  in  the  8^^^^^  accounts  of  the  city  by  the  vice- 
general  books  president  of  the  National  City  Bank  in  a 
and  controUing  widely  quoted  public  address.  The  records 
kept  for  giving  information  to  creditors 
and  to  the  people  are  characterized  as  "not 
much  short  of  chaotic." 

It  was  pointed  out  that  the  balance  sheet  was  a  mis- 
nomer; that  reports  and  financial  statements  were  imin- 
telligible;  that  even  with  such  few  changes  as  had  been 
made  smce  the  greater  city  was  incorporated,  creditors 
and  other  persons  interested  m  the  affairs  of  the  city 


financial  ac- 
counts 


252        NEW  YORK'S  SYSTEM  OF  ACCOUNTS 

were  left  to  grope  in  darkness  for  mformation  necessary 
to  an  intelligent  opinion  as  to  the  value  of  large  issues 
of  securities.  When  such  conclusions  are  reached  by 
persons  who  have  the  best  of  facilities  for  inquiring  into 
the  conditions  of  the  city^s  accounts  small  hope  remains 
for  the  average  citizen,  or  even  for  the  officers  them- 
selves to  act  with  enlightened  discretion. 

Aside  from  the  defects  of  system  above  referred  to, 
it  is  stated  by  those  in  official  position  that  there  are  several 
hundred  accounts  in  the  general  and  subsidiary  books 
concerning  whose  meaning  the  city's  accountants  them- 
selves have  litde  or  no  knowledge.  Some  of  these  repre- 
sent balances  of  millions  of  dollars.     We  are  informed 

Old  accounts  ^^  °^^  ^!  ^^^  accountants  in  the  service 
not  analyzed  ^^  ^^^  ^ity  that  there  are  upwards  of 
two  hundred  such  accounts  on  the  general 
ledgers.  These  are  balances  inherited  from  precon- 
solidation  times  that  have  never  been  analyzed. 

DEFECTS  IN  THE  SYSTEM  OF  ACCOUNTS  AND  STATISTICS 
VIEWED  IN  THEIR  RELATION  TO  EXECUTIVE  OR  OPERA- 
TIVE CONTROL 

With  powers  of  appointment  and  removal  of  heads  of 
departments,  the  mayor  is  responsible  to  the  people  for 
the  economy  and  efficiency  with  which  each  department 
is  managed.  If  the  mayor  is  to  live  up  to  the  duties  and 
responsibilities  placed  upon  him,  there  must  be  a  system 
of  accounts  and  coordinate  operative  statistics  which  will 
keep  before  him  the  information  necessary  to  the  exer- 
cise of  mature  directive  and  executive  discretion  —  in 
other  words,  as  enjoined  by  Section  115  of  the  charter, 
a  system  adequate  "to  keep  himself  informed  of  tlie 
doings  of  the  several  departments." 

To  the  end  that  he  may  ''keep  himself  mformed  of  the 


NEW  YORK'S  SYSTEM  OF  ACCOUNTS        253 

doings  of  the  several  departments,"  the  mayor  is  em- 
Duty  of  mayor  powered  and  required  by  law  (Section  119) 
to  keep  him-  to  "appoint  and  remove  at  pleasure  two 
self  informed  persons  who  shall  be  Commissioners  of 
Accounts,"  who  shall  "make  such  special  examinations 
of  the  accounts  and  methods  of  the  departments  and 
offices  of  the  City  ...  as  the  Mayor  may  from  time  to 
time  direct,  and  such  other  examinations  as  the  said  com- 
missioners may  deem  for  the  best  interests  of  the  City, 
and  report  to  the  Mayor  and  the  Board  of  Aldermen  the 
results  thereof."  For  the  purpose  of  ascertaining  the 
facts  in  connection  with  these  examinations,  the  Com- 
missioners of  Accounts  have  been  given  full  power  to 
compel  the  attendance  of  witnesses,  to  administer  oaths, 
and  to  examine  such  persons  as  they  may  deem  neces- 
sary. 

The  office  of  the  Commissioners  of  Accounts,  as  created 
by  law  and  developed  by  the  city,  operates  in  a  double 
capacity,  viz.:  (i)  that  of  an  audit  bureau  which  may 
serve  as  an  executive  check  on  the  comptroller,  and  (2) 
that  of  a  bureau  of  statistics  for  the  gathering  of  data 
desired  by  the  executive  in  the  exercise  of  his  duties.  In 
this  latter  capacity  the  office  oi  Commissioners  of  Accounts 
Inadequacy  of  ^^  practically  helpless.  Without  a  complete 
office  of  Com-  and  unified  system  of  administrative  ac- 
missioners  of  counts  and  Statistics  in  the  department, 
ccoimt8  information  required  for  intelligent  execu- 

tive judgment  "as  to  the  doings  of  the  several  depart- 
ments" may  not  be  currently  obtained  and  reported. 
Adequate  provision  for  obtaining  data  necessary  to  the 
exercise  of  judgment  in  the  executive  direction  of  the 
heads  of  departments  on  the  part  of  the  mayor  would 
require  that  the  Commissioners  of  Accoimts  have  a  stafiF 
approximately  as  large  as  the  present  accounting  staff  of 


J. 


Tf  ; 


I 
I 


Methods  by 
which  a  com- 
plete adminis- 
trative ac- 
counting may 
be  obtained 


254       NEW  YORK'S  SYSTEM  OF  ACCOUNTS 

the  city.  In  other  words,  in  an  enterprise  as  large  as 
the  city  of  New  York  and  having  such  a  volume  of  current 
transactions,  a  bureau  of  statistics  is  of  little  value  for 
furnishing  current  data  except  as  the  data  are  first 
collected  and  classified  m  the  departments  and  divisions 
of  origination. 

To  duphcate  the  present  accounting  stafiF  would  be 
quite  as  unnecessary  as  the  present  office  of  Commis- 
sioners of  Accounts  is  impotent.  Section  149  of  the 
charter  provides:  ''The  Comptroller  shall  furnish  to  each 
head  of  department,  monthly,  a  statement 
of  the  unexj:>ended  balances  of  the  appro- 
priation for  this  department."  There  being 
a  complete  and  accurate  system  of  accounts 
with  appropriations  in  the  office  of  comp- 
troller, by  confining  the  fund  and  appro- 
priation accounts  to  the  Finance  Department,  where  it 
is  needed  for  financial  control,  this  would  leave  the 
departments  free  to  do  the  detailed  accounting  and  to  keep 
up  the  current  statistics  necessary  to  furnish  a  complete 
digest  of  the  results  of  operation  —  the  information  needful 
to  the  head  of  the  department  as  a  means  of  controlling 
administrative  details,  to  the  mayor  that  he  may  "keep 
himself  informed"  of  the  doings  of  the  departments,  and 
(by  way  of  pubHshed  reports)  to  the  pubhc  that  an  intel- 
ligent view  may  be  had  as  to  the  economy  of  operation 
and  the  efficiency  of  the  service  supported  by  public 
taxation  and  other  forms  of  pubHc  contribution.  To 
state  the  transactions  in  the  form  of  controlled  accounts 
would  in  many  instances  require  less  clerical  work  than 
at  present,  where  the  work  is  done  for  statistical  purposes 
and  the  accounts  kept  on  the  fund  basis.  A  notable 
instance  of  the  duplication  of  work  without  obtaining 
administrative  accounting  results  is  found  in  the  Depart- 


NEW  YORK'S  SYSTEM  OF  ACCOUNTS       255 

ment  of  Street  Cleaning,  comments  on  which  may  be  found 
in  another  portion  of  this  address. 

Control  over  administrative  accounts  may  be  obtained 
in  one  of  two  ways:  (i)  through  the  office  of  comptroller 
by  the  introduction  of  a  uniform  system  of  administrative 
How  operative  accounts  in  the  departments  under  the 
accounts  may  powers  given  to  Comptroller  in  Section  149, 
making  these  department  accounts  sub- 
sidiary to  general  accounts  kept  in  the  Department  of 
Finance,  or  (2)  by  an  amendment  of  the  charter  in  such 
manner  as  to  make  the  Commissioners  of  Accounts  the 
head  of  the  administrative  accounting  system  and  the 
accounts  of  the  departments  subsidiary  to  this  control. 
In  either  case,  however,  it  would  require  that  a  complete 
system  of  accotmts  be  devised  and  mstalled  in  the  depart- 
ments looking  toward  executive  and  operative  control, 
leaving  the  fund  and  appropriation  accounting  to  the 
Department  of  Finance. 

The  advantage  of  having  the  accounts  and  statistics, 
which  look  toward  executive  or  operative  control,  devised, 
installed,  and  super\ised  by  the  Commissioners  of  Accounts 
would  be  that  the  commissioners  are  appointed  by  and 
are  responsible  to  the  mayor,  for  whose  information  (as 
well  as  that  of  his  subordinates,  the  heads 
of  departments),  the  data  are  to  be  obtained. 
Should  the  commissioners  be  given  account- 
ing functions,  the  disadvantage  of  such  a 
control  would  lie  in  the  possible  conflict  of 
authority  between  the  commissioners  and  the  comptroller, 
and  in  the  possible  increased  expense.  The  advantage 
of  having  the  operative  accounts  and  statistics  controlled 
in  the  Department  of  Fmance  would  be  that  all  of  the 
accounts  and  statistics  would  thus  be  brought  together 
in  a  central  office.    A  possible  disadvantage,  however, 


Advantages 
and  disadvan- 
tages of  each 
form  of  con- 
trol 


h ! 


256       NEW  YORK'S  SYSTEM  OF  ACCOUNTS 

lies  in  the  fact  that  the  comptroller  is  by  law  made  one 
of  the  principal  officers  of  financial  control,  and  his  admin- 
istrative responsibihties  under  the  charter  have  been 
entirely  of  this  character.  As  such  officer  it  is  incumbent 
on  him  to  devise  and  install  a  system  of  controllmg  finan- 
cial account,  but  having  no  responsibility  for  the  economy 
or  efficiency  of  departments,  being  independent  of  the 
mayor,  there  has  been  no  provision  in  the  charter  making 
it  his  duty  to  devise,  install,  or  control  executive  and  opera- 
tive accoimts. 

By  reason  of  this  fact,  the  mayor,  in  the  past,  has  been 
seriously  handicapped,  the  interests  of  the  comptroller 
being  financial,  not  operative;  "the  forms  for  keeping 
and  rendering  the  accounts"  have  been  principally  for 
his  information.  Nor  has  the  mayor  the  power  to  compel 
the  keeping  of  such  departmental  accounts  as  will  supply 
the  data  necessary  to  the  inteUigent  performance  of  his 
Mayor  handi-  ^^^  duties.  As  a  result  the  mayor  as  chair- 
capped  by  man  of  the  Board  of  Estimate  and  Appor- 
^t^Im"**'  tionment,  and  in  passmg  on  the  acts  of  the 
Board  of  Aldermen  while  sitting  on  the 
Budget,  has  been  subordinate  in  the  power  of  exercising 
inteUigent  judgment  to  the  comptroller;  as  the  chief 
executive  of  departments  he  has  been  dependent  for 
current  information  on  one  who  has  no  official  interest 
m  or  responsibiUty  for  departmental  results;  he  has  been 
compelled  to  administer  his  office  with  no  adequate  method 
for  assembUng  operative  administrative  data.  In  any 
case  the  charter  should  be  so  amended  that  accounting 
control  would  be  made  consistent  with  efficient  adminis- 
tration. 


General  criti- 
cism restated 


NEW  YORK'S  SYSTEM  OF  ACCOUNTS       257 

CRITICISM  AND  COMMENT  ON  THE  ACCOUNTS  OF  DEPART- 
MENTS EXAMINED 

To  restate  the  general  situation  in  the  departments 
visited:  In  each  of  them  there  was  found  a  system  of 
uncontrolled  accounts  kept  by  fimds  and  appropriations, 
the  only  administrative  purpose  for  which  would  seem 
to  be  to  inform  the  department  head  with  respect  to  the 
balance  of  funds  and  appropriations  unexpended  —  infor- 
mation which  by  charter  is  required  to  be  furnished 
monthly  to  the  heads  of  departments  by 
the  comptroller.  The  present  accoimting 
system  presumes  that  the  mayor  and  other 
administrative  heads  are  not  interested  in  economy  and 
efficiency  while  the  charter  makes  them  responsible.  The 
present  system  presumes  that  the  only  question  in  which 
executives  are  interested  is  whether  departments  are  keeping 
within  appropriations  authorized — knowledge  for  which  the 
comptroller  and  the  city  chamberlain  are  made  responsi- 
ble and  which  looks  toward  financial  rather  than  executive 
control.  If  the  head  of  the  department  or  the  mayor  de- 
sires operative  data  these  are  to  be  collected  spasmodically 
by  the  Commissioners  of  Accounts  or  are  to  be  tabulated 
currently  in  the  form  of  uncontrolled  departmental  statis- 
tics. In  several  of  the  departments,  therefore,  there  are 
two  distinct  branches  of  the  clerical  service,  one  dupli- 
cated in  the  Finance  Department  keeping  fund  accounts, 
and  the  other  one  uncontrolled  by  accounts  but  keeping 
statistical  records  of  its  own  making. 
An  example  of  the  practice  last  above  referred  to  as 
well  as  of  useless  complexity  of  records  is 
aUied  hosjdtais  ^oimd  in  Bellevue  and  AUied  Hospitals.  By 
reference  to  the  special  report  submitted  to 
the  committee  on  accounts  and  statistics,  it  will  be  seen 

i8 


258        NEW  YORK*S  SYSTEM  OF  ACCOUNTS 

(i)  that  the  system  of  organization  of  Bellevue  and  Allied 
Hospitals  is  unnecessarily  involved;  (2)  that  there  is  a 
needless  multiplication  of  work  and  of  entries;  and  (3)  that 
with  all  this  expensive  machinery  there  is  no  commensu- 
rate result  which  will  give  to  those  m  (iiscretionary  posi- 
tion an  intelligent  basis  for  judgment  with  respect  to 
problems  of  administration.  The  following  list  of  books 
kept  in  the  department  shows  multiplication  of  records : 
I.  Books  and  records  kept  by  the  purchasing  agent 
—  called  in  the  department  "the  Bookkeeper": 

1.  *' Contract  Book." 

2.  Order  press-copy  book  —  called  "Letter  Book." 

3.  Order  and  Requisition  Register  —  called  "Requi- 
sition Book." 

4.  Invoice  Register  —  called  "Memo.  Invoice  Book." 

5.  Invoice  Distribution  Book  —  called  "Appropriation 
Charge  Book." 

6.  Invoice  File  —  called  "  Invoices." 

7.  Invoice  Register  (2d)  —  called  "  Stock  Ledgers." 

8.  Three  Purchase  Ledgers  —  called  "  Stock  Ledgers." 

9.  "Journal." 

10.  Purchasing  Agent's  General  Ledger  —  called  "  Gen- 
eral Ledger." 

11.  "  Trial  Balance." 

II.  Books  and  Records  kept  by  the  General  Store- 
keeper: 

1.  "  Order  Register." 

2.  "Requisition  Book." 

3.  Memoranda  of  Goods  Forwarded  —  called  "Memo. 
Book." 

4.  Combination  Register  of  goods  received  at  the 
branch  stores  direct  and  of  goods  delivered  to  the  branch 
stores  by  the  General  Storekeeper  —  called  "Invoice 
Book." 


I 
2 

3 

4 

5 
6 


NEW  YORK'S  SYSTEM  OF  ACCOUNTS       259 

5.  Verified  Record  Invoices  —  called  "  Manifold  Book." 

6.  A  final  manuscript  record  of  distribution  of  goods 
to  Hospitals  —  called  "Distribution  Book," 

7.  "Stock  Ledger." 

III.  Books  and  records  of  general  account  kept  by  the 
Department  Accountant  —  called  "the  Auditor": 

"Bid  Proposal  Register." 

"Requisition  Book." 

"Invoice  File." 

"Invoice  Record." 

"  Voucher  Book." 

"Ledger." 

"Recapitulation  File." 
The  needless  multiplication  of  work  and  entries  is  best 
seen  in  a  restatement  of  the  facts:  Orders  are  copied 
three  times,  invoices  are  copied  in  toto  twice;  they  are 
initialed  fifteen  times  —  five  times  on  each  of  three  copies; 
they  are  stamped  six  times  — twice  on  each  of  three 
copies;  they  are  numbered  six  times  — twice  on  each  of 
three  copies;  the  name  of  the  contractors  in  each  invoice 
is  written  in  the  books  ten  times;  the  date  on  each  invoice 
appears  in  the  books  sixteen  times;  the  amount  of  each 
invoice  is  written  ten  times;  the  quantity  of  goods  on  each 
invoice  is  written  seven  times;  the  invoices  are  distributed 
to  the  same  appropriation  five  times;  and  the  requisitions 
are  recorded  six  times. 

While  the  controlling  accounts  of  the  Street  Cleaning 
Department  are  practically  the  same  as  those  kept  by 
the  Finance  Department,  the  distribution  for  statistical 
purposes  is  highly  classified  and  better  adapted  to  obtain- 
The  street  ing  administrative  results  than  that  of  any 
clewing  de-      other   operative   department   visited.    The 

partment  .      1  .i«^  \       t.   • 

mabihty  to  obtam  accountmg  results  which 
will  give  to  the  head  of  the  department,  and  to  the  mayor 


» 


260       NEW  YORK'S  SYSTEM  OF  ACCOUNTS 


NEW  YORK'S  SYSTEM  OF  ACCOUNTS       261 


f  i 


I 


Docks  ftnd 
ferries 


as  chief  executive,  an  adequate  basis  for  intelligent  direc- 
tion and  control  is  due  to  lack  of  general  accounts  which 
will  make  this  information  currently  available  as  a  matter 
of  acquiring  control. 

The  docks  and  the  municipal  ferries  of  the  city  are  in 
the  nature  of  municipal  industries,  being  operated  on  the 
basis  of  commercial  remuneration  received  from  those 
who  avail  themselves  of  this  branch  of  the  municipal 
service.  The  accoimts  should  therefore  show  relations 
of  operating  expenses  to  income  in  order  that  those  in 
administrative  position  may  know  whether 
fees  and  charges  are  adequate  to  protect 
the  city  from  loss,  whether  the  properties 
are  being  properly  maintained  out  of  current  income  — 
in  fact  should  answer  every  operative  question  which 
would  be  necessary  to  intelligent  and  effective  control 
in  case  the  department  was  operated  as  a  private  cor- 
poration. Aside  from  operative  control  there  should  be 
accoimts  which  would  protect  the  fidelity  of  employees, 
and  to  this  end  there  should  be  a  strict  accounting  for 
stock,  materials,  and  suppUes  as  well  as  of  cash. 

Operative  accounts  are  lacking  and  the  system  of  stock- 
keeping  and  stock-accounting  is  lax.  The  mayor  wishing 
a  statement  as  to  the  cost  of  operating  a  mimicipal  ferry, 
it  is  necessary  for  the  clerical  staff  of  the  department 
to  make  a  special  investigation  and  report.  The  cash 
accounting  on  the  other  hand  is  well  adapted  to  the  exer- 
cise of  financial  control. 

Soon  after  the  organization  of  the  advisory  Commission 
in  Finance  and  Taxation,  the  chairman  of  the  sub-com- 
mittee on  accounting  and  statistics  was  re- 
quested by  the  president  of  the  Board  of 
Education  to  report  to  a  committee  appointed 
by  him  on  the  system  employed  in  this  department  of 


The  Board  of 
Education 


municipal  activity.  This  was  undertaken  with  the  under- 
standing  that  such  part  of  the  report  as  might  be  deemed 
of  interest  to  the  advisory  commission  might  also  be  sub- 
mitted for  their  consideration.  In  the  course  of  the  exami- 
nation every  branch  of  the  department  was  visited  and 
every  important  record  kept  in  these  branches  was  ex- 
amined; forms  and  statements  were  obtained  from  heads 
of  bureaus  and  employees  were  interviewed;  conferences 
were  had  with  members  of  the  board  and  of  important 
committees  as  well  as  with  superintendents  of  instruction. 
The  report  as  rendered  to  the  committee  of  the  board  was 
based  on  the  signed  statements  of  members  of  the  board 
and  heads  of  bureaus. 

Later,  as  a  means  of  verifying,  from  independent 
sources,  the  methods  of  the  department,  Dr.  W.  R. 
Patterson,  and  Mr.  H.  H.  Rathyen  of  the  Comptroller's 
Department,  were  asked  to  prepare  a  statement  of 
method;  but  on  calling  at  the  office  of  auditor  of  the 
department  they  were  refused  access  to  the  books.  An 
amended  statement  of  the  report  made  to  the  committee 
appointed  by  the  president  of  the  board  is  herewith  sub- 
mitted (Chapter  XVII),  and  made  a  part  of  this  report. 
In  general  it  may  be  said  that  the  accounts  of  the  board 
are  accounts  designed  for  financial  control,  but  have  little 
regard  for  questions  of  administrative  efficiency,  economy 
of  operation,  or  other  matters  of  executive  concern.  Since 
the  report  was  made  to  the  committee  of  the  Board  of  Edu- 
cation, the  auditor  has  proposed  a  revision  of  the  accounts 
to  accord  with  some  of  the  suggestions  made,  but  in  these 
he  seems  not  to  have  grasped  the  administrative  aim  and 
purpose  of  executive  and  operative  accounts.  Efforts  have 
also  been  made  by  the  board  through  the  supply  depart- 
ment to  get  at  relations  of  economy  in  matters  of  fuel, 
etc.,  as  a  result  of  which  it  is  reported  that  large  reduc- 


li 


262       NEW  YORK'S  SYSTEM  OF  ACCOUNTS 


tions  have  been  made  in  the  cost  of  physical  opera- 
tions. 

While  efiForts  to  solve  administrative  cjuestions  by  inde- 
pendent statistical  methods  may  prove  of  eminent  service 
to  an  institution,  the  only  safe,  accurate,  and  economical 
way  of  obtaining  current  information  necessary  to  intelli- 
gent executive  control  is  to  make  this  a  matter  of  current 
and  controlled  accounting  —  to  have  the  data  obtained  in 
such  way  that  the  whole  system  will  at  once  feel  the  shock 
of  any  inaccuracy  in  statement  and  to  make  this  data  avail- 
Department  ^y^^  ^^  ^^^^^  ^^^  monthly  closing.  Much 
statistics  time  is  now  spent  in  the  departments  in 

keeping  unnecessary  multi})le  accounts  look- 
ing toward  financial  control;  much  time  is  lost  in  statistical 
investigation  and  special  reports  as  a  means  of  obtaining 
information  which  may  serve  the  executives  in  giving 
direction  to  the  city's  affairs.  This  may  be  done  away 
with  by  the  installation  of  administrative  accounts  in  the 
departments  which  will  regularly  and  currently  place  the 
data  desired  before  department  and  executive  heads. 
Besides  the  government  of  the  city  may  be  much  more 
effectively  managed  and  controlled  by  having  accurate 
and  well-classified  reports  of  operative  results  constantly 
before  those  in  position  of  official  responsibility. 

Not  the  least  among  the  benefits  to  be  derived  from  a 
system  of  accounts  designed  to  give  executive  control  is 
that  reports  may  be  regularly  and  promptly 
rendered  to  the  public  by  means  of  which 
mtelligent  judgment  may  be  exercised  in 
the  choice  of  officers  —  in  other  words  such  a  system  of 
reports  is  necessary  not  only  for  administrative  control 
but  also  as  a  means  of  obtaining  operative  control  over 
the  officers  and  agents  of  the  city  entrusted  with  the 
management  of  its  affairs. 


Need  for  better 
reports 


CHAPTER  XVII 

Principles   Governing  the  Making  of  a  School 

Report  ^ 

Before  subjecting  the  reports  to  a  critical  analysis 
submitted,  it  is  to  be  noted  that  no  access  has  been  had 
to  the  books  and  records  of  the  Board  of  Education  from 
which  these  reports  were  drawn,  nor  to  the  books  and 
records  of  the  comptroller  of  the  city  of  New  York,  where 
the  treasury  accoimts  and  central  records  of  school  funds 
are  kept.  The  opinion  applies  only  to  the  reports  them- 
selves. The  bases  for  the  criticisms  herein  offered  are 
found  (i)  in  the  Law  (i.e.,  the  constitution  and  statutes 
of  the  State  of  New  York,  and  the  charter  of  the  city  of 
New  York,  which  provides  for  the  organization  of  schools, 
the  care  and  distribution  of  funds,  the  preparation  of 
budgetary  estimates  for  apportionment  and  appropria- 
tions, for  the  levying  and  collection  of  revenues,  etc.), 

(2)  in  the  evident  purpose  of  making  such  reports,  and 

(3)  in  certain  assumptions  made  as  to  what  the  content 
of  a  report  should  be  as  determined  by  legal  requirements 
and  the  evident  purpose  of  the  exhibit. 

the  purpose  of  making  reports 

The  evident  administrative  purpose  of  making  and 
publishing  a  report  of  any  department  of  municipal  ser- 

*  Opinion  rendered  to  Dr.  William  H.  Allen,  General  Agent  of  the 
New  York  Association  for  Improving  the  Condition  of  the  Poor  relative 
to  the  administrative  and  instructional  value  of  the  Fifth  Annual  Report 
of  the  Department  of  Education  (for  1902)  and  of  the  Fifth  Annual 
Report  of  the  City  Superintendent  of  Schools  (for  1903). 

263 


<  f 


264       THE  MAKING  OF  A  SCHOOL  REPORT 

vice  is  twofold :  (i)  To  lay  before  officers  and  administra- 

Dcpartmentai     ^'T,?  ^P""*'  '''''^  weU-digested  information  as 
reports  ^ili  give  to  them  the  data  for  the  exercise 

of  sound  discretion  m  the  performance  of 
their  duties  and  for  the  protection  of  public  welfare;  (2)  to 
bring  before  the  public  such  records  of  service  rendered 
by  public  officials  and  such  summaries  of  administrative 
results  as  will  inform  them  of  the  dohigs  of  the  agents 
into  whose  hands  the  affairs  of  the  city  have  been  placed. 
Both  of  these  purposes  are  within  the  duties  of  office,  to 
the  discharge  of  which  an  adequate  report  is  essential. 

While  the  report  of  a  subordinate  officer  within  a  depart- 
ment (one  having  direction  and  control  over  a  certain 
division  of  departmental  work  and  whose  duties  are 
special  within  the  administrative  group  of  which  the 
department  is  composed)  is  governed  by  the  same  gen- 
eral purposes,  it  is  limited  by  the  narrower  scope  of  official 
duties.    Such  an  officer  cannot  intelligently  represent  the 

Reports  of  ^^^^  ^^  ^^^  department.  His  report  is  not 
subordinates  *^  ^^^  general  government  of  the  city,  and 
should  form  no  part  of  a  rej)ort  of  the  gen- 
eral government  to  the  citizens.  His  return  is  to  the  head 
of  the  department  to  which  he  belongs  and  within  which 
his  special  duties  Ue. 

The  purpose  of  a  special  report,  as  distinct  from  that 
of  the  report  of  a  department,  is  to  convey  to  those  in 
charge  of  the  department,  and  to  whom  the  one  making 
it  is  officially  responsible,  such  detailed  information 
and  sununaries  of  transactions  as  may  serve  as  a  guide 
Special  reports  ^°^  administrative  judgment  within  the  de- 
partment. It  should  also  be  the  means  of 
supplying  the  data  from  which  certain  portions  of  the  re- 
port of  the  head  of  the  department  to  the  chief  executive 
officer  of  the  city  may  be  drawn.    From  the  many  special 


THE  MAKING  OF  A  SCHOOL  REPORT      265 

reports  a  general  report  of  the  work  of  a  department 
may  be  compiled;  but  the  first  may  also  have  a  signifi- 
cance in  themselves  that  will  warrant  individual  publication. 
Whatever  may  be  the  reasons  for  its  separate  cu-culation, 
however,  when  so  published  it  must  be  regarded  as  a 
document  supplementary  to  the  general  report  of  the 
department  containing  details  in  which  the  officers  of 
administration  and  the  public  may  be  separately  inter- 
ested, but  which  could  not  be  conveniently  handled  in 
the  general  pubUcation. 

WHAT  A  PUBLISHED  REPORT  SHOULD  CONTAIN 

The  second  criterion  for  judgment  of  the  reports  of 
the  Board  of  Education  and  its  superintendent  has  refer- 
ence to  content,  or  the  character  and  completeness  of  the 
data  exhibited.  A  general  guide  to  content  is  found  in 
the  purpose  of  the  report,  and  in  the  Law,  in  so  far  as  this 
contains  a  prescription.  Generally  speaking,  however, 
legal  prescriptions  proceed  from  a  failure  on  the  part  of 
officials  to  properly  perform  their  duties  with  respect  to 
the  demands  of  government  for  information  and  the 
claims  of  the  public  on  then-  agents  for  a  proper  report 
of  their  doings.  A  report  should  exhibit  in  a  well- 
digested  form  all  the  data  pertaining  to  the  branch  of 
service  represented  which  will  be  of  interest  to  the  officers 
in  control,  or  to  the  public.  To  apply  this  to  the  two  re- 
ports in  hand :  The  duties  and  responsibilities  of  the  city 
What  a  super-  Superintendent  of  schools  pertain  to  ser- 
intendent's  re-  vices  rendered  or  to  be  rendered  by  the 
wnta'ta  "^"^  educational  staffi  He  is  the  administra- 
tive head  of  public  instruction  m  the  city 
of  New  York.  He  is  not  the  head  of  the  Department  of 
Education  —  this  position  is  occupied  by  the  Board  of  Edu- 
cation.   He  does  not  direct  the  administration  of  the 


- ,' 


! 


266       THE  MAKING  OF  A  SCHOOL  REPORT 

Department  of  Supplies,  nor  is  he  responsible  for  Buildings 
and  Grounds;  he  has  no  control  over  the  financial  ad- 
ministration or  financial  records.  Any  data  that  he  may 
obtain  which  relates  to  these  several  subjects  must  come 
as  a  matter  of  voluntary  inquiry  and  response;  as  to  sub- 
jects outside  of  his  province  his  report  could  not  be  official. 
As  the  head  of  public  instruction,  what  should  an  officer 
report  to  the  Board  of  Education,  and  through  the  board 
to  the  public  ?  Evidently  the  content  of  the  report  should 
be  confined  to  the  content  of  his  powers  and  duties  —  a 
report  of  purely  educational  services  rendered. 

The  same  standard  as  to  content  would  require  that 
the  report  made  by  the  Department  of  Education  to  the 
chief  executive  ofiicer  of  the  city  (the  mayor)  be  an  en- 
tirely different  one,  both  for  the  information  of  officers  of 
administration  and  for  the  enUghtenment  of  citizens  and 
taxpayers.  A  published  report  from  the  board,  as  the 
What  a  report  official  head  of  the  department,  should  set 
of  a  board  forth  in  clear  light  and  in  readily  intelligible 
should  contain   ^^^^  ^  ^^^  ^^^^  ^j  interest  pertaining  to 

work  of  this  entire  branch  or  department  of  municipal 
activity.  The  following  relations  and  conditions  are 
fundamental:  The  Department  of  Education  has  been 
organized  and  officered  to  render  a  special  class  of  service; 
to  accompHsh  the  ends  of  its  creation  the  department 
must  be  suitably  equipped;  as  a  means  of  employing 
officers  and  providing  equipment,  funds  are  necessary. 
These  fundamental  facts  lend  public  as  weU  as  administra- 
tive interest  to  three  principal  inquiries,  answer  to  which 
should  be  contained  in  a  pubUshed  report,  viz.:  (i)  What 
is  the  service  rendered  by  the  department  and  by  what 
agents?  (2)  What  is  the  equipment  provided  and  in  hand 
for  rendering  service?  (3)  What  are  the  financial  provi- 
sions made  and  the  financial  results  of  administration? 


m 


THE  MAKING  OF  A  SCHOOL  REPORT      267 


An  adequate  report  on  the  first  subject  suggested  (ser- 
vice rendered)  would  require  at  least  two  distinct  exhibits, 
viz. :  (i)  A  statement  pertaining  to  the  purely  educational 
service  rendered,  the  data  for  which  should  be  made 
available  to  the  board  through  the  report  of  the  city 
Report  as  to  Superintendent  of  schools,  and  (2)  a  state- 
service  ren-  ment  of  administrative  service,  or  that  which 
*^®"^  is  incidental  to  providing  the  agencies  and 

equipment  necessary  to  the  rendering  of  the  purely  edu- 
cational service.  The  former  would  include  the  services 
of  supervising  and  teaching  staff;  the  second  would  include 
the  services  of  the  Board  of  Education  and  of  the  several 
administrative  bureaus  or  divisions  organized  under  it  — 
the  Department  of  Supplies,  the  Division  of  Buildings 
and  Grounds,  etc. 

Data  pertaining  to  the  second  subject  of  inquiry  (equip- 
ment) are  of  interest  only  in  so  far  as  they  may  be  cor- 
related with  the  purposes  to  which  equipment  is  applied. 
These  purposes  are:  (i)  Superintendence  and  instruction, 
and  (2)  general  administration.  In  each  of  these  relations 
three  distinct  classes  of   properties   are  in 

!Sipment  used  ^^^^  ^^^ '  ^  ^^^  ^^tate,  (b)  buildings  and 
equipment,  and  (c)  furniture,  apparatus,  etc. 
Again,  the  city  has  two  distinct  relations  to  real  estate  and 
buildings  and  equipment  —  i.e.,  as  owner  and  as  lessee. 
These  various  related  conditions  give  to  the  board  a  basis 
for  the  classification  of  data,  which  may  be  ampUfied  by  sub- 
classification  and  comparison  in  such  manner  as  to  answer 
specific  questions  of  pubhc  and  administrative  inquiry. 
Report  as  to  ^^  ^  means  of  properly  understanding 
financial  reia-  financial  operations  and  their  results,  both 
tions  and  re-  the  public  and  those  in  administrative  con- 
trol would  have  a  final  statement  and  report 
showing  (i)  relations  of  economy,  drawn  from  a  compari- 


I 


268       THE  MAKING  OF  A  SCHOOL  REPORT 

son  of  income  and  expenses  with  service  rendered,  (2)  re- 
lations of  proprietorship,  or  the  finances  pertaining  to 
property  and  equipment  acquired  and  liabilities  incurred, 
and  (3)  relations  of  fideUty  of  subordinate  officers  or 
agents  as  trustees  or  custodians. 

If  the  report  of  the  city  superintendent  of  schools  con- 
tains all  of  the  information  that  the  public  or  officers  of 
administration  may  demand  pertaining  to 

Premises  sum-     -     j.        .•  jj  it^i  .       e 

marized  mstruction  rendered,  and  if  the  report  of 

the  Department  of  Education  conveys  the 
information  desired  on  the  main  subjects  of  interest  above 
set  forth,  then  there  can  be  no  room  for  criticism  as  to 
content;  in  such  case  the  only  criticism  that  might  be 
offered  would  go  to  the  form  or  method  of  exj)osition; 
the  inquiry  to  be  raised  would  be  as  to  whether  or  not  the 
data  might  not  have  been  set  forth  in  such  a  way  as  to 
make  the  conclusions  more  clear  and  more  readily  intel- 
Hgible  to  the  reader.  If,  on  the  other  hand,  information 
as  to  any  of  these  leading  points  is  lacking,  then  assuming 
that  the  standard  for  judgment  is  accepted,  criticism  must 
be  directed  to  the  content  of  the  reports  as  well  as  to  the 
form  and  style. 

THE   CONTENT  OF   THE   "FIFTH   ANNUAL  REPORT   OF   THE 
CITY  SUPERINTENDENT  OF  SCHOOLS" 

The  "Fifth  Annual  Report  of  the  City  Superintendent 
of  Schools"  is  contained  in  the  first  one  hundred  and 
twenty-nine  pages  of  the  volume  bearing  that  title.  This 
report  is  supplemented  and  supported  by  exhibits  con- 
taining reports  of  subordinates,  which,  together  with  a 
small  amoimt  of  general  information,  make  up)  the  remain- 
ing portion  of  a  book  of  three  hundred  and  fifty  pages. 
This  general  arrangement  of  report  and  subsidiary  ex- 
hibits conforms  to  the  usual  method  of  presentation.    As 


im 


THE  MAKING  OF  A  SCHOOL  REPORT      269 


to  content,  also,  in  so  far  as  the  attempt  is  to  set  out 
the  data  pertaining  to  the  duties  and  activities  of  the 
Principal  sub-  office  of  the  city  superintendent  and  of  his 
jects  reported  subordinates,  there  is  little  else  to  suggest. 
®°  There  are  three  general  subjects  reported 

on,  and  these  coincide  with  the  three  subjects  concern- 
ing which  information  is  desired,  viz.:  (i)  The  adequacy 
of  schools  and  departments  of  instruction  to  render  ser- 
vice; (2)  the  organization  of  the  supervising  and  teach- 
ing staff;  (3)  the  educational  service  rendered.  Further 
data  might  have  been  introduced  to  give  completeness  to 
summaries  showing  organization  of  supervising  and  teach- 
ing staff,  as  well  as  summaries  pertaining  to  service  ren- 
dered. This  criticism  refers  especially  to  the  lack  of 
data  pertaining  to  evening  schools,  vacation  schools, 
recreation  centres,  playgrounds,  special  classes,  etc. 

As  to  content,  the  chief  criticism  would  be  that  the 
superintendent  has  attempted  to  report  conclusions,  and 
to  exhibit  data  pertaining  to  subjects  entirely  outside  of 
the  scope  of  his  ofl&cial  duties  and  responsibilities.  Refer- 
ence is  here  made  to  such  exhibits  as  the  following:  "Ex- 
penditures for  school  purposes,"  pp.  120-3;  "P^r  capita 
cost  of  instruction,"  pp.  124-7;  "litigation  and  diminished 
appropriations,"  pp.  127-8;  "new  buildings  and  equip- 
ment," pp.  23-31;  etc.  It  is  to  be  remembered  that  the 
superintendent's  report  is  to  the  Board  of 
Education  as  the  head  of  the  department  in 
which  he  is  an  officer,  and  that  the  board 
has  better  facilities  for  obtaining  information  pertaining 
to  the  financial  administration  of  schools  than  has  the 
superintendent  —  in  fact,  the  information  exhibited  to 
the  board  by  the  superintendent  must  first  be  obtained 
by  him  from  the  board.  The  same  criticism  holds  true 
with  reference  to  exhibits  of  buildings  and  equipment; 


Chief  criticism 
as  to  content 


M 


270       THE  MAKING  OF  A  SCHOOL  REPORT 

the  information  given  comes  second-hand.  The  super- 
intendent of  buildings,  and  other  officers  entirely  outside 
of  the  authority  of  the  superintendent  —  those  responsible 
and  directly  subordinate  to  the  Board  of  Education  — 
are  the  ones  from  whom  this  information  is  to  be  obtained. 
There  is  no  reason  why  the  superintendent  may  not  make 
use  of  any  data  obtainable  from  reUable  sources  for  the 
purpose  of  presenting  the  needs  and  activities  of  his  own 
department,  but  the  exhibits  here  referred  to  are  not  of 
this  kind.  They  are  in  the  nature  of  a  presentation  of 
facts  as  information  to  the  board  and  through  the  board 
to  the  public.  Even  though  the  Board  of  Education  might 
fail  in  its  duty  (to  the  general  government  and  to  the 
public)  to  make  a  proper  exhibit  of  certain  branches  of 
its  own  work,  there  is  no  reason  why  the  superintendent 
should  assimie  responsibilities  which  he  cannot  meet. 
Such  unofficial  information  weakens  his  own  report  and 
at  the  same  time  tends  to  shift  attention  from  the  weak- 
ness of  the  report  of  the  board. 

THE  REPORT  OF  THE  CITY  SUPERINTENDENT  CONSIDERED 
FROM  THE  STANDPOINT  OF  FORM 

Admitting  excellence  as  to  content  in  so  far  as  the 
report  deals  with  the  functions  and  duties  of  the  purely 
educational  branch  of  the  service,  any  attempt  to  review 
the  form  and  method  of  exposition  must  be  undertaken 
with  considerable  hesitation.  In  representing  a  view, 
therefore,  reasons  are  given,  and  these  reasons  are  offered 
as  subjects  for  consideration. 

"While  the  literary  style  of  the  report  is  such  as  to  carry 
the  attention  of  the  reader,  an  attempt  to  analyze  the 
context  and  to  fix  the  data  in  the  memory  discovers  the 
fact  that  its  plan  is  not  easy  to  trace.  Applying  prin- 
ciples of  exposition,  it  may  be  said  that  the  form  does  not 


THE  MAKING  OF  A  SCHOOL  REPORT       271 

give  emphasis  to  conclusions.  Again,  the  use  made  of 
Outline  report  ^^^^^^  ^^^  Statistical  statements  of  general 
subjects  of  conclusions  reached  has  not  been  such  as 
principal  in-  to  Strike  the  eye;  these  oftener  foUow  rather 
than  precede  the  textual  treatment.  Any 
attempt  made  to  suggest  an  outline  or  to  restate  the  report 
might  be  open  to  as  serious  objection.  But  assuming 
for  the  sake  of  illustration  that  the  three  main  subjects 
of  administrative  and  popular  interest  are  as  above 
indicated;  viz.:  (i)  the  adequacy  of  schools  and  depart- 
ments of  mstruction  to  render  service,  (2)  the  organization 
of  the  supervising  and  teaching  staff,  and  (3)  the  edu- 
cational service  rendered  —  then  these  might  be  made  the 
three  main  divisions  of  the  report  and  all  of  the  data 
might  be  organized  accordingly.  Attemptmg  to  reor- 
ganize the  report  along  these  Imes,  the  following  outline 
is  submitted: 


I.   ADEQUACY  OF  SCHOOLS  AND  DEPARTMENTS  OF  INSTRUC- 
TION TO  RENDER  SERVICE 

1.  Number  and  location  of  schools  and  departments  of 

instruction  organized, 
(i)  Number  and  classification,  19-22. 
(2)  Consolidation  of  schools,  107-8. 

2.  Prospective  schools  and  departments  of  instruction. 

(i)  New  buildmgs,  23-31. 

(2)  Brooklyn  trainmg  school,  48. 

3.  Instruction  needs  not  adequately  provided  for. 

(i)  Sittings  and  register,  35. 

(2)  Increasing    demands    compared    with    new 

schools. 
(a)  Increase  in  average  attendance,  35. 
{b)  Growth  in  kindergartens,  40-41. 

(3)  Need  for  special  schools. 


■  I 


«7«   THE  MAKING  OF  A  SCHOOL  REPORT 


^'Pl^ 


i* 


(i)  Training  schools. 

(a)  Brooklyn,  48. 

(b)  Kindergarten  training  school,  49-50. 

(2)  High  schools. 

(a)  Manual  Training  High  School,  55. 

(3)  Schools  for  defective  children,  1 10-17. 

4.  Vacation  schools,  playgrounds,  and  recreation  cen- 

tres, 1 1 7-18. 

5.  School  libraries,  11 8-1 9. 

II.   ORGANIZATION    OF    THE    SUPERVISING    AND    TEACHING 

STAFF 

1.  General  exhibit,  38. 

2.  Supervising  stafiF. 

(i)  Organization. 

(a)  Board  of  Superintendents,  16-18. 

(b)  District  superintendents,  18-19. 

(2)  Methods  for  increasing  efficiency  of  staff. 

(a)  Superintendents'  conferences,  1x9-120. 

(b)  Syllabus  Committee,  70-72. 

(c)  Teachers'  Plan  Books,  108-110. 

3.  Principals  and  teachers. 

(i)  In  elementary  schools,  37-38. 
(2)  Educational  and  service  requirements, 
(i)  Licensing,  42-49. 

(a)  Training  school  teachers,  42. 

(b)  High  school  teachers,  43. 

(c)  Elementary  schools. 

(i)  Heads  of  departments,  43. 

(2)  Teachers  of  graduating  classes, 

43- 

(3)  Evening  schools,  45. 

{d)  Kindergartens,  44. 
{e)  Special  branches,  45. 


THE  MAKING  OF  A  SCHOOL  REPORT       273 

(/)   Substitutes,  45. 

(g)  Vacation  schools  and  playgroimds, 

45- 

(2)  Service  recognition. 

(a)  License  for  promotion,  43. 

(b)  Permanent  licenses,  46-47. 

(3)  Teaching  methods. 

(a)  Departmental  system,  72-106. 
(i)  Schools  employing  plan,  75-6. 

(2)  Departmental  work  and  teachers* 

interest,  76-9. 

(3)  Effect  of  departmental  work  on 

methods,  79-82. 

(4)  Effect  of  departmental  work  on 

students'  interest,  82-89. 

(5)  Effect  of  departmental  teaching 

on  students'  work,  89-92. 

(6)  Departmental  plan  and  discipline, 

92-98. 

(7)  Effect  of  departmental  instruc- 

tion on  penmanship,  99-102. 

(8)  Summary,  103-106. 


m.   EDUCATIONAL  SERVICE  RENDERED 

1.  Courses  of  instruction  offered. 

(i)  High  schools,  54-55. 

(2)  Elementary  schools,  62-72. 

(3)  Manual  branches,  64-65. 

(4)  Electives,  65-66. 

(5)  Special  branches,  106. 

2.  School  attendance, 

(i)  Enrolment. 

(a)  Net  enrolment,  33. 

(b)  Net  enrolment  and  population,  33-34. 
19 


I 


1 


\t\ 


r.D 


.«( 


^aI 


274       THE  MAKING  OF  A  SCHOOL  REPORT 

(2)  Average  attendance,  52-53. 

(a)  Increase,  52-53. 

(b)  Increase  in  kindergartens,  40-41. 

(c)  Distribution  of  pupils,  38-39. 
(i)  Distribution  by  sexes,  39. 

(3)  Part  time  pupils,  36-37. 
3.  Graduates. 

(i)  Training  schools,  48. 

(2)  High  schools,  51-52. 

(3)  Elementary  schools. 

(a)  Average  age  of  graduation,  41. 

^  Without  offering  the  above  as  an  outline  for  use,  but 
simply  for  the  purpose  of  discussion,  it  is  urged  that  a 
plan  which  has  in  mind  a  definite  answer  to  questions 
of  prime  administrative  and  popular  interest  should  be 
adopted;  that  in  developmg  this  plan  the  general  statis- 
tical tables  and  conclusions  should  first  be  presented; 
and  that  in  the  textual  treatment  and  detailed  statements 
i>,«.«i-«   *      *^^^^  should  be  governed  bv  questions  of 

■principles  01         . J*    ^      •  -1  ."^ 

exposition  immediate  mterest  at  the  tune  of  making 
the  report.  In  opposition,  it  may  be  argued 
that  a  subject  may  be  best  presented  by  putting  the  con- 
crete first.  This  might  be  true  if  the  primary  purpose 
were  to  convince  the  reader  as  to  the  accuracy  of  the 
conclusions;  it  might  also  be  accepted  as  a  principle  of 
research.  The  purpose  of  a  report,  however,  is  to  present 
conclusions  and  not  to  argue  them;  to  give  confidence 
these  may  be  supported  by  such  details  as  may  serve 
to  illuminate  the  result.  But  aside  from  the  academic 
reasons  there  are  several  practical  ones.  A  very  small 
portion  of  those  interested  in  the  report  care  to  master  the 
details;  accepting  the  accuracy  of  statements,  a  general 
knowledge  of  results  only  is  desired.    This  should  be 


THE  MAKING  OF  A  SCHOOL  REPORT       275 

made  the  most  accessible  —  if  possible,  capable  of  bemg 
taken  in  at  a  glance.  A  second  practical  reason  is  found 
in  the  fact  that  even  a  special  feature  may  be  better  under- 
stood if  looked  at  from  the  viewpomt  of  the  relation  of 
the  special  feature  to  the  whole.  A  third  reason  is  urged 
—  that  a  statement  of  sunmiaries  and  results  not  only 

statements  of      ^""^^  }'''  }^^    ''^^^^    ^    ^^^^"^g    hypothesis 

general  results  ^^  ^  ^^^^is  for  the  investigation  of  details 
reported,  but  also  forces  a  classification 
which  will  give  greater  clearness  and  consistence  and 
better  coordination  to  the  textual  and  detailed  discussion 
of  the  report  itself.  The  same  reasoning  has  led  to 
the  introduction  of  general  tables  and  schedules  at  the 
beginning  of  a  subject  treated,  when  such  devices  may 
convey  the  general  conclusion  with  greatest  facility. 

The  following  exhibits  are  given  not  as  substitutes 
for  any  that  may  akeady  have  been  made,  nor  for  use  in 
making  a  report,  but  simply  for  illustration  of  the  prin- 
ciples of  exposition  above  outlined.  The  first  two  sched- 
ules relate  to  (^4)  Adequacy  of  Facilities  for  Rendering 
Service,  and  to  the  (B)  Organization  of  Supervising  and 
Teaching  Staff. 

In  the  textual  treatment  given  to  these  divisions  of 
the  report,  following  the  tables,  the  several  classes  of 
schools  and  departments  may  be  discussed  and  illumi- 
nated m  the  order  adopted  by  the  authorities  as  the  basis 
for  classification  and  tabular  statement.  Within  each  of 
the  minor  subjects  so  discussed  may  be  inserted  any 
specific  tables  or  data  that  may  contribute  to  the  presen- 
tation. 


I 


M' 


r 


III 


276      THE  MAKING  OF  A  SCHOOL  REPORT 


Exhibit  A 

General  Exhibit  of  Number  and  Lck:ation  of  Schools  and 
Departments  of  Instruction 


Borough 


c4 


Higher  Instruction. 
Day  Schools: 

Training  Schools 

High  Schools 

High  School  Departments 
Evening  Schools: 

High  Schools 

High  School  Departments 
Elementary    Schools    and 

Branches: 
Grammar  Schools: 

Day 

Evening 

Kindergarten  Classes  .... 

Vacation  Schools 

Recreation  Centres 

Play  Grounds 

Work  Shops 

Nautical  Schools 

Training  Schools 


I02 

33 

158 

* 

* 
* 

I 
I 


2 


1 


o» 


39 
3 

36 


135 
21 

146 
6 


o 


73 

7 

57 
* 

* 


Yeah 


igoa 


1901 


3 
II 

8 

II 


33 

4 

17 

* 
* 


481 

68 

420 

* 
* 

48 

I 
2 


* 


41 

* 

* 
* 

* 
* 


* 
* 
* 

* 
* 


* 

* 
* 
* 
* 
* 
* 
* 


1900 


* 

* 


1899 


* 

Ik 

* 
■I' 


* 
* 

* 


* 

* 

* 
* 


*  Infonnation  lacking. 


I 


THE  MAKING  OF  A  SCHOOL  REPORT      277 

Exhibit  B 
Organization  for  Supervision  of  Instruction 


General  Supervision: 

Head  City  Superintendent 

Associate  Superintendents 

Division  Superintendents 

OflSce  Assistants 

Special  Supervision: 

Superintendent  Vacation  Schools,  etc. 

Superintendent  Evening  Schools 

Superintendent  Training  Schools  .... 

Ofl&ce  Assistants 

Principals: 

Training  and  High  Schools: 

Manhattan 

The  Bronx 

Brooklyn 

Queens 

Richmond 

Elementary  Schools: 

Manhattan 

The  Bronx 

Brooklyn 

Queens 

Richmond 

Office  Assistants 

Other  Supervising  Officers: 

Number 

Office  Assistants 

Total  Officers 

Total  Office  Assistants 

Grand  Total 


Yeak 


1903     1902 


I 
8 

23 


I 
I 

I 


* 

* 
* 
* 

* 
* 

* 
* 

* 


* 

* 

* 

* 

* 


* 

* 
* 

* 

* 

* 
* 


1901 


* 

* 
* 

* 
* 

* 


* 
* 

* 
* 
* 

* 

* 
* 
* 


1900 


* 
* 

* 


* 

* 
* 
* 

* 
* 
* 

* 
If 

* 


1899 


* 
* 

* 


* 
* 

* 
* 
* 

* 


*  Information  lacking. 


l(  • 


278       THE  MAKING  OF  A  SCHOOL  REPORT 

Exhibit  B 
Teaching  Staff  by  Boroughs 


Year 

*********         *****         *****              *****         ***                   g 

M 

*********            *****            *****                   *****            ***                          "I 

M 

*********       *****        *****            *****        ***                "8 

1                ***       *****            *****        *****       ********* 

1899 

Schools  of  Higher  Instruction: 
Training  Schools: 

Manhattan 

¥ 

Brooklyn 

* 

Queens 

* 

High  Schools  and  Departments: 

Manhattan 

* 

The  Bronx 

« 

Brooklyn 

* 

Queens 

* 

Richmond 

* 

Elementary  Schools  and  Branches 
Grammar  Schools: 

Manhattan 

* 

The  Bronx 

* 

Brooklyn 

* 

Queens 

* 

Richmond 

* 

Kindergarten  Classes: 

Manhattan 

♦ 

The  Bronx 

« 

Brookl)m 

* 

Queens 

* 

Richmond 

* 

Special  Branches: 

Manhattan 

* 

The  Bronx 

* 

Brooklyn 

* 

Queens 

* 

Richmond 

* 

Nautical  School 

* 

Truant  Schools 

* 

Other  Teaching  Staff 

* 

Total 

* 

♦Infonnation  lacking. 


THE  MAKING  OF  A  SCHOOL  REPORT       279 

Exhibit  B 
Teaching  Staff  by  Classes  and  Sexes 


Schools  of  Higher  Instruction: 

Training  Schools,  Male 

Female 

High  Schools,  Male 

Female 

Total,  Male 

Female 

Elementary  Schools: 

Grammar,  Male 

Female 

Kindergarten,  Male 

Female 

Special  Branches,  Male 

Female 

Truant,  Male 

Female 

Nautical,  Male 

Female 

Other  Teachers,  Male 

Female 

Total  Elementary,  Male 

Female 

Grand  Total 


Year 


1903 


* 

* 

* 

* 
* 

* 

* 

* 
* 
* 
* 


190a 


* 

* 
* 

* 

* 

* 


1901 


* 
* 

* 
* 
* 

* 

* 
* 

* 
* 


1900 


* 

* 
* 
* 
* 
* 
* 
* 


1899 


* 
* 

* 

* 
* 
* 


*  * 

*  * 

*  « 

*  * 


*  Information  lacking. 

With  regard  to  superintendence  and  instruction,  facts 
must  now  be  sought  in  various  widely  sepa- 

speciai  toptw      ^^^^  P^^^^  ^^  ^^^  superintendent's  report, 

as  follows:  In  statements  pertaining  to  the 

organization  of  the  Board  of  Superintendents  (pp.  16-18); 

in  the  exhibit  of  organization  of  the  district  superintendents 


f 


.  f 


m\' 


V/ 


280       THE  MAKING  OF  A  SCHOOL  REPORT 

and  a  statement  of  their  assignments  and  duties  (pp.  18-19)  > 
in  the  list  of  the  Board  of  Special  Examiners  (p.  10) ;  in 
the  list  of  special  assignments  for  evening  schools,  recre- 
ation centres,  etc.  (p.  19);  in  the  tabulated  sunMnaries 
and  classified  statements  with  reference  to  teachers  (pp. 
32,  37,  38);  etc.  Consolidation  and  correlation  as  sug- 
gested above  would  obviously  facilitate  a  proper  apprecia- 
tion of  any  topic  of  special  interest  and  eliminate  whatever 
textual  comment  might  be  thought  to  be  necessary  to  an 
understanding  of  those  fimctions  of  the  Department  of 
Education  that  fall  under  the  authority  of  the  superin- 
tendent. 

The  third  division.  Educational  Service  Rendered,  may 
also  be  introduced  by  a  general  tabular  statement.  What- 
ever the  form  of  the  table,  it  should  give  answer  to  the 
questions  of  administrative  concern  and  popular  inquiry. 
In  answering  these  questions,  the  facts  and  conclusions 
should  not  only  be  set  out  in  such  a  manner  as  to  repre- 
Shouid  lay  Sent  teaching  service,  but  to  lay  the  founda- 
foundation  for  tion  for  such  portions  of  the  general  report 
board's  report  ^j  ^^it  Board  of  Education  as  depend  on 
the  report  of  the  superintendent.  The  same  purpose  and 
necessity  would  determine  the  arrangement  and  classifi- 
cation of  textual  treatment,  of  detailed  exhibits  and  of 
special  summaries. 

Some  of  the  subjects  of  administrative  and  popular 
interest  at  the  present  time  pertain  to  evening  schools, 
Why  complete  special  branches,  vacation  schools,  and  rec- 
showing  should  reation  centres.  To  specific  inquiries  on 
be  made  points   of   current   interest   special   textual 

treatment  and  detailed  exhibits  may  be  given.  But 
information  on  topics  of  special  interest  is  only  incidental 
to  the  report;  its  primary  purpose  is  to  enlighten  the 
administration  in  the  performance  of  duty  and  to  enlighten 


THE  MAKING  OF  A  SCHOOL  REPORT       281 

the  public  concerning  the  doings  of  their  corporate  ser- 
vants. It  is  essential  to  both  purposes  that  information 
be  given  on  all  branches  of  the  service.  Likewise  it  is  to 
the  advantage  of  the  officer  whose  duty  it  is  to  make  the 
report.  For  example:  A  subject  that  has  not  been  made 
a  matter  of  interest,  but  to  which  serious  consideration 
may  be  given,  is  that  of  the  private  (so-called  corporate) 
schools  to  which  the  city  is  giving  large  revenues  each 
year.  These  contributions  are  supposed  to  rest  on  a 
pseudo-control.  The  administration  and  the  public  should 
have  definite  knowledge  of  the  character  of  instruction 
given  and  the  educational  results  accompHshed  by  these 
legatees  under  the  law  as  it  at  present  stands.  Should 
controversy  arise  at  any  time  concerning  these  schools, 
the  officer  whose  duty  it  is  to  report  such  information 
might  be  justly  condemned  for  withholding  it  or  failing 
to  make  it  accessible. 

THE    "fifth    annual   REPORT   OF   THE   DEPARTMENT   OF 


EDUCATION 
TATION 


>> 


—  ITS   FORM   AND   METHOD   OF   PRESEN- 


The  "  Fifth  Annual  Report  of  the  Department  of  Edu- 
cation" to  the  chief  executive  officer  of  the  city  would 
seem  to  possess  few  features  measuring  up  to  any  accept- 
able standard,  either  for  the  guidance  of 
Defective  char-  ^^^^^^  ^^  j^^  ^^^  mformation  of  the  pubHc. 

acter  oi  report 

Nor  can  the  genered  excellence  of  the  exhibit 
made  by  the  superintendent  of  schools  be  considered  as 
an  exonerating  circumstance.  It  has  already  been  sug- 
gested that  the  report  of  the  superintendent  of  schools 
cannot  be  a  substitute  for  a  report  from  the  board;  that 
he  does  not  report  to  the  mayor;  that  he  cannot  officially 
report  on  any  matter  that  does  not  come  within  the  range 
of  his  duties  and  activities;   that  the  purely  educational 


!l 


282       THE  MAKING  OF  A  SCHOOL  REPORT 

activities  of  the  department  form  only  one  part  of  one 
of  the  three  general  subjects  of  interest  to  be  presented 
by  the  Board  of  Education  to  the  mayor.  True,  the  de- 
tailed information  from  which  the  report  of  the  Board  of 
Education  is  to  be  drawn  must  be  derived  in  considerable 
measure  from  the  several  resi)onsible  officers  within  the 
department,  and  this  information  is  obtamed  by  the 
board  in  the  form  of  documents  submitted,  which  may  be 
appended  for  further  illumination.  But  admitting  all 
this,  the  reproduction  of  these  documents  or  subordinate 
reports  cannot  be  considered  as  a  proper  method  of 
reporting  the  activities  of  the  department  as  a  whole. 
Aside  from  commanding  reports  from  subordinates  the 
board  has  a  duty  to  perform. 

The  "  Fifth  Annual  Report  of  tjie  Department  of  Edu- 
cation" contains  four  classes  of  material,  viz.:  (i)  The 
signed  report  or  letter  of  transmission;  (2)  a  financial 
statement;  (3)  reports  of  subordinate  officers,  with  prop- 
erty schedules;  and  (4)  a  directory  of  official  members 
of  the  staflF  of  superintendence  and  instruction.  The 
signed  report  or  letter  of  transmission  occupies  the  first 
twenty-two  pages.  Of  this  all  but  one  page  is  an  excerpt 
from  the  report  of  the  superintendent  of  schools,  and  this 
one  page  is  made  up  of  an  excerpt  from  the  law.  The 
second  section,  or  the  "financial  report,"  is  presented  in 
one  hundred  and  fifty-four  pages.  Following  this  are  the 
signed  reports,  in  haec  verba,  made  by  the  superintendent 
of  school  supplies  (forty  pages),  the  superintendent  of 
Analysis  of  ^^^turcs  (fifty-four  pages),  the  superintend- 
pubiished  report  ^^*  ^^  ^^^  Nautical  School  (ten  pages) ;  a 
statement  of  school  sites  (twenty  pages); 
a  list  of  officers  and  staff  (twenty  pages),  and  the  school 
directory  (thirty-six  pages).  In  the  whole  volume,  con- 
taining four  himdred  and  twenty-one  pages  of  printed 


THE  MAKING  OF  A  SCHOOL  REPORT       i83 


matter,  there  does  not  seem  to  be  any  attempt  to  lay 
before  the  officers  of  the  department  itself,  or  before  the 
general  officers  and  administrative  agents  of  the  city,  such 
a  digest  of  information  as  will  give  to  them  the  data  neces- 
sary for  the  exercise  of  sound  discretion  in  the  perform- 
ance of  their  duty  and  for  the  protection  of  the  general 
welfare;  nor  does  it  bring  to  the  public  such  record  of 
service  rendered  by  public  officials  and  such  summaries 
as  will  inform  them  of  the  doings  of  those. agents  into 
whose  hands  the  educational  affairs  have  been  placed. 
The  only  part  of  the  document  which  purports  to  come 
from  the  board  is  that  contained  in  the  financial  exhibit. 
Whatever  may  be  the  content  of  the  volume,  so  far  as  it 
pertains  to  the  subjects  of  principal  pubUc  interest  or 
administrative  inquiry,  the  information  given  must  first 
be  searched  out  by  the  reader  from  the  mass  of  special 
and  subordinate  documents  and  detailed  statements. 

We  turn  to  the  content  or  substance  obtainable  after 
this  heterogeneous  array  has  been  analyzed  and  digested. 
Invoking  as  a  standard  for  judgment  that  the  board  in 
its  official  capacity,  as  head  of  the  department,  has  a  duty 
to  perform,  and  that  this  duty  is  to  report  to  the  executive 
officers  of  the  city  as  well  as  to  the  pubUc  all  the  data 
pertaining  to  the  work  of  this  branch  of  municipal  activity 
which  may  be  of  interest  to  either,  the  analysis  is  pro- 
ceeded with. 


I 


CONTENT  OF  THE  REPORT  AS  TO  SERVICE  RENDERED 

Pertaining  to  service  rendered,  such  information  as  is 
contained  in  the  report  of  the  department  is  in  the  first 
section.  From  page  8  may  be  drawn  the  following  sum- 
mary: 


■liB  i 

1' 


(iil 


'■It 


284       THE  MAKING  OF  A  SCHOOL  REPORT 

Number  of  schools  under  jurisdiction  of  Board 51, 

Number  of  teachers  (exclusive  of  teachers  of  special  branches, 

directors,  and  superintendents)   11,741 

Total  number  of  pupils  on  register  in  elementary  schools 431,491 

925 

la 

6 


3 
680 

14,590 
17 
II 

38 


Average  daily  attendance .05 

Number  of  high  schools  and  training  schools 

High  school  departments  in  the  Borough  of  Queens 

High  school  departments  in  the  Borough  of  Richmond 

Total  number  of  teachers  (high  school) 

Average  attendance , 

Number  of  corporate  schools  and  soi  ieties  (Manhattan) 

Number  of  corporate  schools  and  societies  (Brooklyn) 

Total  corporate  schools  and  societies 

Number  of  teachers  in  corporate  schools ^go 

Number  of  pupils  in  corporate  schools 19,829 

This  summary  is  not  presented  (as  is  shown  above)  in 
tabular  form,  but  the  information  is  found  in  a  running 
text;  it  is  the  only  summary  given  of  educational  service 
rendered  in  high  schools,  training  schools,  elementary 
schools  and  other  schools  under  the  jurisdiction  of  the 
board.  No  separate  summaries  are  given  pertaining  to 
the  several  classes  of  schools.  The  detailed  exhibits 
which  follow  contain  nothing  but  schedules  of  registra- 
tion and  average  attendance,  and  in  this  the  classification 
is  by  individual  schools  and  boroughs.  To  show  the 
character  of  the  exhibit,  the  following  excerpt  is  given: 


Public  School 
Pepartment 

Register 
July  31,  1902 

Average  At- 
tendance for 
Year 

Public  School 
Department 

Register 
July  31, 190a 

Average  At- 
tendance iac 
Year 

56  P.  D. 

57  G.D. 

57  P.  D. 

58  B.  D. 
58  P.  D. 

586 
856 
1,560 
868 
740 

626 

743 

i>577 

758 

749 

77  B.D. 

77  G.D. 

78  G.D. 

78  P.  D. 

79  B.D. 

1,415 

1,371 

959 
672 

1,041 

1,462 

1,347 
810 

735 
903 

Whatever  may  be  said  of  a  showing  of  this  kind  in  the 


THE  MAKING  OF  A  SCHOOL  REPORT       285 


report  of  the  superintendent  of  schools  to  the  board  it  is 
submitted  that  the  general  summary  exhibited  and  the 
^  ,  ^  ,  nineteen  solid  pages  of  detailed  statistics 

Defects  in  f  o 

report  of  such  as  above  referred  to  are  not  sufficient 

educational  ser-  information  to  enlighten  the  ofl&cer  or  to 
vice  rendered  g^tisfy  the  inquiry  of  a  taxpayer  as  to  the 
educational  and  administrative  public  service  rendered 
by  the  Department  of  Education  of  the  city  of  New  York. 
It  is  submitted  that  in  the  detailed  statistical  subjects 
treated,  the  content  is  not  sufficient,  and  further,  that  the 
form  of  presenting  these  statistics  is  not  such  as  to  be 
readily  imderstood  and  grasped.  In  other  words,  that 
the  report  in  so  far  as  it  attempts  to  represent  service 
rendered  is  deficient  in  content  as  well  as  to  form  of 
presentation. 

The  objection  is  often  urged  that  the  benefits  of 
destructive  criticism  are  lost  because  no  accompanying 
suggestion  is  made  for  improvement.  In  this  relation, 
it  is  to  be  remembered  that  constructive  criticism  and 
suggestion  should  flow  from  a  more  exact  knowledge  of 
records  and  of  conditions  present  than  may  be  had  from 
the  report  itself,  which  is  made  the  subject  of  the  fore- 
going  strictures.  But  certain  general  topics 
report  on  of   interest   may   be   pointed   out   from   a 

«*  Educational »»  knowledge  of  the  law  governing  the  organ- 

in'th^^ia*""'*  ization  of  schools  and  from  a  general 
imderstanding  of  the  nature  of  the  service 
rendered.  By  provision  of  charter  (Sec.  1069),  power 
is  expressly  conferred  on  the  Board  of  Education  to 
establish  and  conduct  the  following  classes  of  instruction: 


I 


I , 


(i)  High  Schools  and  Training  Schools  for  teachers. 
(2)  Elementary  Schools  (in  addition  to  regular  grade 
schools). 


286       THE  MAKING  OF  A  SCHOOL  REPORT 

(i)  Kindergartens. 

(2)  Manual  Training  Schools. 

(3)  Trade  Schools. 

(4)  Truant  Schools. 

(5)  Vacation  Schools. 

(6)  Evening  Schools. 

(7)  Special  Classes. 

(8)  Free  Lectures. 

It  appears  from  the  financial  and  other  sections  of  the 
report  of  the  board,  and  from  the  report  of  the  superin- 
tendent of  schools,  that  these  several  classes  have  been 
established  and  are  being  conducted.    In  addition  to  the 
above  enumerated  classes  of  instruction,  the  law  (charter, 
Sec.   1 152)   has  also   recognized  certain   private  schools 
as  a  part  of  the  educational  system  of  New  York.     It  is 
further  to  be  noted  that  stiU  another  class,  viz.,  instruc- 
tion conducted  in  what  are  known  as  recreation  centres, 
IS  being  given.     Without  attempting  to  prescribe  forms 
or  schedules,  it  may  be  consistently  urged  that  the  pub- 
he,  as  weU  as  responsible  officers  and  agents,  would  be 
interested  in  having  well-digested  information  presented 
(m  statistical  summary  and  in  subsidiary  schedules  and 
exhibits)  showing  the  service  which  is  being  i)erformed  in 
the  several  classes  and  departments  of  instruction,  and 
that  this  mformation  be  reduced  to  such  a  basis  that  com- 
panson  may  be  instituted  for  the  purpose  of  determining 
the  relative  educational  efficiency  of  each. 

Still  another  branch  of  inquiry  as  to  service  rendered 
Subjects  for  ^^  found  in  the  general  administration  of  the 
report  on  ad-  department,  at  the  head  of  which  is  the 
minis^rative  Board  of  Education  itself.  To  give  con- 
ciseness to  the  suggestion,  the  textual  treat- 
ment of  this  branch  of  departmental  activity  might  be 


|i: 


THE  MAKING  OF  A  SCHOOL  REPORT       «87 

preceded  by  a  tabular  statistical  summary  of  the  main  facts 
and  conclusions  reached.  Without  claiming  for  the  form 
conformity  to  the  exact  need,  the  table  below  is  sug- 
gested for  the  purpose  of  illustrating  the  character  of 
exhibit  referred  to. 


Statistics  of  School  Operation  — 

General  Administration 

Yeak 

1897 

1898 

* 

* 
* 

* 
* 

* 
* 

* 

* 

* 
* 
* 
* 
* 
* 
* 
* 

St           *       ********       *  *  *       ********* 

*********         *    *    *          ********          *               '9 

*********            *     *     *            ********            *                   '% 

g,                                   *                       ********                      *         *         *                      ********* 

M 

1903 

Board  of  Education: 

Members  of  the  Board 

* 

* 
* 
* 
* 

* 
* 
* 

* 

* 

* 
* 
* 

* 
* 
* 

* 

* 

Subordinate   Officers    of   the   Board, 
Male 

* 

Female 

* 

Clerks  and  Stenographers,  Male 

Female  . . . 
Office  Attendants,  Male 

* 
* 
* 

Female 

* 

Janitors  and  Caretakers,  Male 

Female 

Total   Nunu  Empl.  in  the  Gen.  Of- 
fices, Male 

* 
* 

* 

Female 

* 

Total 

* 

Department  of  Supplies: 

Officers  and  Assistants,  Male 

Female 

Stock  Clerks,  etc.,  Male 

* 
* 
* 

Female 

* 

Caretakers,  Male 

« 

Female 

* 

Total  in  Dept.  of  Supplies,  Male  .... 

Female  . . 
Total 

* 

* 
4c 

*  Inform  ation  lacking. 


288       THE  MAKING  OF  A  SCHOOL  REPORT 


Statistics  of  School  Operation  —  General  Administra- 
tion —  Continued 


11 


Superintendence  of  Buildings: 

Superintendent  and  Assistants,  Male . . 

Female 
Clerks  and  Stenographers,  Male 

Female  . .  . 
Janitors,  Male 

Female 

Caretakers,  Male 

Female 

Carpenters,   Electricians    and   Skilled 

Men 

Other  Laborers 

Total    under    Super,    of    Buildings, 

Male 

Female 

Total 

Total  Employed  in  Gen.  Admin.,  Male . . 

Female 
Total 


YSAJt 


1897 


1898 


* 
* 
* 
* 
* 
* 

* 
* 

* 
* 
* 

* 
* 


* 
* 
* 
* 
* 
* 
* 
* 

* 
* 

* 

* 
* 
* 


1899 


* 

* 
* 

* 
* 

* 
* 

* 
* 


1900 


* 
* 

* 

* 


1901 


* 
* 

* 
* 

* 
* 

* 

* 
* 
* 
* 
* 
* 


190a 


* 
* 


1903 


* 

* 

* 

* 
* 

* 


*  Information  lacking. 

In  the  literary  presentation  of  subjects  of  "ser- 
vice," all  of  these  several  relations  indicated  might  be 
illummated  and  enlarged  upon  by  subsidiary  schedules 
and  such  exhibits  as  might  be  necessary  to  give  public 
confidence  in  the  result  obtained  or  to  furnish  the  detailed 
information  required  as  a  basis  for  administrative  dis- 
cretion and  critical  judgment. 


THE  MAKING  OF  A  SCHOOL  REPORT       289 


CONTENT  OF  THE  REPORT  OF  THE  BOARD  OF  EDUCATION 
PERTAINING  TO  PHYSICAL  EQUIPMENT  PROVIDED  FOR 
SCHOOL  PURPOSES 

The  only  part  of  the  report  of  the  Board  of  Educa- 
tion which  deals  with  school  equipment  is  found  in  the 
reports  of  subordinate  officers  and  in  the  schedules  of 
sites  and  buildings.  Of  these  no  digest  is  made  and  no 
coordination  is  attempted  by  the  board.  In  the  report 
Defects  in  re-  oi  the  superintendent  of  school  buildings 
port  as  to  is  found  much  of  interesting  data;  this, 
equipment  however,  is  ill-digested  and  has  no  summary 
which  will  catch  the  eye  and  quickly  convey  intelligence 
as  to  the  physical  aspects  of  the  educational  plant.  In 
another  section  a  report  is  foimd  giving  a  list  of  school 
sites  which  have  not  been  improved.  But  the  best  digest 
that  can  be  made  from  the  data  here  given  leaves  much 
lacking  that  is  necessary  to  a  proper  understanding  of 
equipment  and  leaves  the  reader  without  any  information 
from  which  judgment  may  be  made  as  to  the  fidelity  of 
official  custodians  of  property  intended  for  public  use. 
Neither  is  there  any  information  which  will  admit  of  a 
conclusion  with  reference  to  adequacy  of  equipment  and 
comparison  with  equipment  needs. 

As  before  suggested,  there  are  two  distinct  purposes 
pertaining  to  education  for  which  the  property  of  the  city 
under  control  of  the  board  is  used.  These  purposes  may 
be  described  as  :  (i)  General  Administration;  (2)  Su- 
perintendence and  Instruction.  There  are,  moreover,  at 
least  three  distinct  classes  of  physical  property  to  be 
accounted  for,  viz.:  (i)  Land  for  sites  and  playgrounds; 
(2)  buildings  and  permanent  improvements;  and  (3)  fur- 
niture, apparatus,  etc.  If,  therefore,  an  attempt  is  made 
to  represent  the  several  classes  of  property  used  for  the 
20 


> 


290       THE  MAKING  OF  A  SCHOOL  REPORT 


I 


General  sub- 
jects of  in- 
terest with 
reference  to 
equipment 


ill 
ll'i 


several  purposes  suggested,  it  would  be  necessary  to  make 
a  showing,  statistically  or  otherwise,  of  the 
lands,  buildings,  and  properties  employed  for 
administration  purposes;  and  of  the  lands, 
buildings,  and  properties  employed  for  super- 
intendence and  instruction.  In  representing 
further  the  properties  employed  for  superintendence  and 
instruction  still  other  sub-classifications  might  be  made 
which  would  show  the  properties  and  equipment  used  by 
the  supervising  staff  and  those  in  use  by  teachers  and 
pupils.  Some  such  representation  might  also  be  made 
with  respect  to  prospective  buildings,  or  those  in  the  proc- 
ess of  erection  or  for  the  erection  of  which  some  definite 
provision  has  been  made  (as  that  contained  in  the  pub- 
lished report).  By  way  of  still  further  illuminating  the 
textual  discussion,  the  properties  and  equipment  used  for 
purposes  of  instruction  might  be  classified  according  to 
the  character  of  the  several  kinds  of  schools  using  them, 
A  classified  statement  of  equipment  such  as  that 
indicated,  however,  cannot  be  made  of  highest  admin- 
istrative use,  and  will  not  give  to  the  public  the  best 
information,  unless  the  general  statistics  are  reduced  to 
units  of  comparison.  Among  nimierous  imits  of  compari- 
son might  be  mentioned  floor  space  occupied  per  student; 
cubic  yards  of  air  space  of  rooms  occupied  per  student; 
text-books  and  supplies  furnished  per  student,  etc., 
arranged  according  to  schools  and  classes  of  schools. 
Would  not  such  facts  be  of  distinct  administrative  advan- 
tage in  judging  physical  conditions  pertaining  to  health, 
comparative  cost  of  heating,  lighting,  caretaking,  repairs 
and  replacements,  etc.  ?  The  establishment  of  units  of  com- 
parison would  also  be  necessary  to  a  popular  estimate  of 
official  ability  in  administrative  and  official  custodianship 
and  fidelity  with  reference  to  text-books,  supplies,  etc. 


THE  MAKING  OF  A  SCHOOL  REPORT       291 

To  illuminate  a  discussion  of  properties  and  equipment 
an  exhibit  might  be  made  of  sites  owned  and  sites  leased, 
Should  estab-  building  sites  improved  and  imimproved,  of 
lish  units  of  temporary  buildings  compared  with  per- 
comparison  manent  buildings,  air  space  contained  in 
each  class  per  student,  etc.,  etc.  The  floor  and  air  space 
occupied  for  administrative  and  supervising  purposes  as 
compared  with  the  space  occupied  for  teaching  purposes 
might  also  be  brought  into  comparison.  Various  sum- 
maries and  exhibits  might  be  suggested  to  throw  light  on 
the  problem  of  relation  of  physical  equipment  to  service 
rendered,  and  also  to  furnish  a  basis  for  judgment  with 
respect  to  administrative  economy  and  use  of  property. 
The  suggestion  here  as  before  is,  not  that  the  particular 
subjects  above  mentioned  should  be  taken  for  illimiina- 
tion  in  reports,  but,  first,  that  whatever  data  might  be 
considered  of  importance,  the  board  is  in  a  position  to 
obtain  the  same  at  small  expense,  and,  secondly,  that  it 
has  a  duty  to  report  them  to  the  chief  executive  officer 
of  the  city  and  through  him  to  the  public. 

CONTENT   OF   THE   REPORT   AS   TO   FINANCIAL   OPERATION 

AND  FINANCIAL  RESULTS 

Among  the  most  important  divisions  in  a  report  of  any 
department  of  municipal  government  is  that  which  reflects 
financial  relations  and  results.  It  is  these  relations  that 
are  first  brought  home  to  the  taxpayer  and  to  the  munic- 
ipal corporation  at  large.  It  is  the  financial  side  of 
operation  which  causes  the  citizen  to  ask  concerning 
relations  of  cost  to  service  rendered  and  economy  of  ad- 
Defects  in  ministration.  It  is  financial  interest,  also, 
financial  re-  which  institutes  inquiry  as  to  proprietor- 
^^  ship  and  as  to  the  fidelity  of  officers  and 

agents  in  the  administration  of  public  properties  and 


\¥ 


292       THE  MAKING  OF  A  SCHOOL  REPORT 


THE  MAKING  OF  A  SCHOOL  REPORT       293 


ti- 


ll 


in  the  creation  of  corporate  liabilities.  A  report  which 
attempts  to  reflect  these  results,  therefore,  should  collect 
the  financial  data  of  administration  around  three  princi- 
pal categories,  viz. :  (i)  Categories  of  economy  of  admin- 
istration; (2)  categories  of  corporate  proprietorship;  and 
(3)  ^categories  of  fidelity  of  officers  and  agents.  Turn- 
ing again  to  the  report  of  the  Department  of  Education 
for  these  results  we  find  it  deficient  in  content  as  well  as 
difficult  to  understand.  From  the  report  under  review, 
little  or  no  information  can  be  obtained  as  to  relations  of 
administrative  economy.  The  report  reflects  no  basis 
for  comparison  of  administrative  cost  among  the  several 
departments  or  among  the  several  classes  of  institutions 
and  departments  of  instruction.  As  a  matter  of  expense, 
it  may  be  proper  to  ask.  What  are  the  expenses  incurred 
for  instruction?  What  are  the  expenses  incurred  for 
general  administration?  What  are  the  miscellaneous 
general  expenses?  And  in  making  a  showing  of  the 
expenses  incurred  for  instruction  it  would  be  proper  to 
inquire,  What  are  the  expenses  of  instruction  within  the 
several  classes  of  schools  and  departments? 

Inquiries  of  this  kind  are  necessary,  not  only  fot  the 
purpose  of  instituting  a  comparison  of  expenses  with 
revenue  and  appropriations,  but  also  that  the  experience 
of  one  year  may  be  aligned  with  the  experience  of  another 
year.  As  a  further  test  for  administrative  economy,  a 
unit  of  cost  per  pupil  may  be  established  that  the 
inquirer  may  get  at  the  relative  expense  of  instruction 
within  the  several  'groups  or  departments.  In  exam- 
Absence  of  ining  the  expenses  of  general  administra- 
comparative  tion,  it  is  proper  to  know  what  is  the  relative 
tables  of  coat  ^^^^  ^£  maintaining  the  board  itself,  and  of 
the  general  administration  of  the  Departments  of  Supplies, 
of  Building  Superintendents,  of  janitor  service,  etc.    So, 


too,  in  making  inquiry  as  to  miscellaneous  or  general 
expenses,  it  may  be  of  advantage  to  know  the  cost  of  heat- 
ing and  lighting  per  cubic  imit;  of  caretaking  per  square 
unit,  etc.  In  the  exhibit  made  of  the  amount  of  fuel 
used,  while  the  number  of  tons  and  pounds  used  in  each 
building  and  the  total  cost  are  reported,  there  is  no  state- 
ment showing  the  prices  per  ton  —  the  only  intelligible 
key  to  a  financial  statement  of  a  fuel  account.  Further- 
more, the  statements  made  in  the  report  of  janitor  service, 
while  long  and  given  in  detail  as  to  the  amounts  paid  to 
each  person,  contain  no  showing  as  to  whether  this  amount 
is  for  salary  or  for  some  other  purpose.  Judging  from 
the  amount  paid  to  each,  in  some  instances  running  as 
high  as  $2,000  or  $4,000,  it  is  to  be  assumed  that  these 
in  part  are  statements  of  moneys  distributed  through  the 
person  named.  Classification  is  desirable  that  will  not 
only  show  the  several  important  items  of  cost,  absolute 
and  comparative,  in  total  and  by  imit,  but  will  also  exhibit 
such  relations  as  sinking  fund  requirements,  and  other 
current  charges  for  which  revenue  contribution  should  be 
made. 

Another  subject  for  inquiry  that  comes  properly  within 
the  term  "economy"  is  to  be  found  in  an  accoimt  and 
final  showing  of  revenues  provided  for  the  purpose  of 
meeting  costs  of  administration,  etc.  As  to  this,  the  report 
made  is  inadequate.  Section  226  of  the  charter  provides 
for  departmental  estimates  for  the  ensuing  year.  It 
further  provides  (Sec.  1064,  subsequently  amended)  for  a 
tax  the  minimum  amount  of  which  shall  not  be  less  than 
three  mills.  Another  provision  is  that  the  departmental 
statements  of  estimate  shall  go  before  the  Board  of  Esti- 
revenues  defec-  mate  and  Apportionment,  where  the  final 
*^*  budget  shall  be  determined.     None  of  these 

financial  relations  are  shown  in  the  published  report.    The 


:ji 


lit 


i 

m 


'  fi. 


294       THE  MAKING  OF  A  SCHOOL  REPORT 

constitution,  the  statutes  of  the  State  of  New  York,  and 
the  charter  further  provide  for  income  to  the  schools  of 
the  city  for  the  "common  school  fund,"  the  "literature 
fimd,"  the  "United  States  Government  dejx)sit,"  etc., 
and  other  funds,  and  yet  no  representation  is  made  in  the 
published  report  as  to  these.  The  charter  provides  (Sec. 
1066)  for  the  sale  of  supplies  not  needed  and  not  to  be 
used,  and  for  the  application  of  the  money  so  received  for 
current  use  to  the  special  fund  of  the  borough  in  which 
the  suppUes  are  sold.  The  only  representation  of  rev- 
enues accruing  to  the  schools  is  under  the  term  and  title 
"appropriations"  —  which  should  not  be  regarded  as 
coterminous  with  "revenues." 

All  expenses  of  the  board  must  be  paid  by  warrant, 
and  this  warrant  must  be  reduced  to  controlling  record; 
therefore,  the  records  and  rejKDrt  of  the  Board  of  Educa- 
tion and  the  city  comptroller  should  be  in  agreement. 
From  an  examination  of  the  two  reports,  it  will  be  found 
that  in  the  general  financial  statement  for  the  year  end- 
Lack  of  har-  "^S  December  31,  1902,  there  is  scarcely  an 
mony  with  item  of  financial  summary  in  agreement, 
statements  of  Nor  are  the  general  balances  the  same. 
comptroUer  Qnly  four  items  of  the  general  summary 
of  the  "special  school  fund,"  for  example,  are  in  accord, 
whereas  fifteen  of  them  are  out  of  accord.  The  balance 
of  appropriations  remaining  unexpended  as  represented 
by  the  Board  of  Education  is  $380,109.49,  while  accord- 
ing to  the  pubUshed  report  of  the  comptroller  for  the 
same  date  the  balance  is  $1,531,947.78. 

Without  attempting  to  do  more  than  illustrate  the 
character  of  showing  that  might  be  made  in  a  final  summary 
exhibiting  relations  of  administrative  economy,  and  not 
even  attempting  to  bring  the  sub-titles  into  harmony  with 
the  existing  institution,  the  following  suggestion  is  offered : 


THE  MAKING  OF  A  SCHOOL  REPORT       2ft5 

Comparative  Financial  Statistics 

I.    Statistics  Showing  Relations  of  Economy  — 
Expenses  Incurred 


Ybak 


1897 


General  Administration: 
Salaries  and  Wages: 

Board  of  Education  and  General. 

Department  of  Supplies 

Superintendent  of  Buildings 

Other 

Supplies 

Miscellaneous  General 

Total  General  Administration  . 
Superintendence  and  IiIstruction: 
Salaries  and  Wages: 

City  Supt.,  Asso.  City  Supts.,  Dist. 

Supts.,  etc 

Teaching  Staff: 
Day  Schools: 

Training  Schools 

High  Schools 

Elementary  Schools 

Evening  Schools 

Vacation  Schools  and  Recreation 

Centres 

Total  Salaries  and  Wages 

Educational  Supplies: 

Text-books 

Printing 

Blank  Books  and  Paper 

Stationary 

Libraries 

Miscellaneous 

Total  Educational  Supplies 


* 

* 
* 
* 


1898 


* 
* 
* 
* 
* 
* 


1899 


* 
* 
* 


4c 
* 


1900 


* 

* 

* 

* 
* 


* 

* 

* 

* 
* 

* 
* 


1901 


* 
* 
* 

* 
* 


1903 


* 
* 
* 

* 

* 


1903 


* 
* 
* 

* 
* 

* 

* 
* 


* 
* 
* 
* 

* 
* 

* 

* 

* 
* 

* 


* 
* 

* 
* 

* 

* 
* 
* 

* 


* 

* 
* 
* 
* 

* 


* 
* 

* 

* 
* 

« 

* 

* 

* 


*  Information  lacking. 


m 


I 


296       THE  MAKING  OF  A  SCHOOL  REPORT 

Comparative  Financial  Statistics 

I.    Statistics  Showing  Relations  of  Economy  — 
Expenses  Incurred  —  Continued 


Superintendence  and  Instruction  : 

Cost  of  Lectures 

Total   Superintendence  and    In 

struction   

Building    Operation     and    Mainte- 
nance: 
Operation: 

Salaries  and  Wages 

Supplies : 

Fuel  and  Light 

Jzinitors  and  Cleaners 

Other 

Total  Operation 

Maintenance  (including  depreciation)  : 

Grounds 

Buildings 

Furniture  and  Fixtures 

School  Books  and  Libraries 

Apparatus  and  Machinery 

Other 

Total  Maintenance 

Total  for  Operation  and  Maintenance 
Total  Expenses  Incurred  during  Year . . . 


YEAt 


1897 


* 
* 

* 

* 
* 

* 

* 


1898 


*  Information  lacking. 


* 
* 
* 
* 
* 
* 
* 
* 
* 


1899 


* 
* 
* 
* 

* 
* 
* 
* 
* 
* 
* 
* 


1900 


4* 


1901 


* 
* 

* 

* 

* 
* 
* 
* 
* 
* 
* 
* 


1902 


* 
* 

* 

* 

* 

* 
* 


1903 


* 

* 

* 
* 
* 
* 

* 
* 

* 


THE  MAKING  OF  A  SCHOOL  REPORT       297 

Comparative  Financial  Statistics 

II.     Statistics    Showing     Relations    of    Economy  —  Revenues 

Accrued. 


Dept,    Estimates    for   the    Ensuing 

Year,  §226 

Property  Basis  for  Apportionment 
AND  Appropriation  for  Schools, 

§1064  

MiN.  Amt.  of  School  Approps.  under 

THE  Law,  §226 

Budget  as  Prepared  by  the  Board 
OF  Estimates  and  Apportion- 
ment, §226 

General  Fund 

Special  Fund 

Total 

Revenue  from  Taxation  as  Appropri- 
ated and  Approved  by  Board  of 
Aldermen,  §226. 

General  Fund 

Special  Fund 

Total 

Amount    Accruing    from    the   State 

AND  Other  Funds: 

Com.  School   Fd.  Cons.  IX,  §3   and 

Statistics 

Liter.  Fd.  Cons.  IX,  §3  and  Statistics 

U.  S.  Gov.  Deposit,  IX,  §3  and  Statistics 

Other  Revenus  Accruing  During  the 

Year: 

Sale  of  Supplies  for  Benefit  of  Sp.  Fd., 

§1066  

Miscellaneous 

^Total  Rev.  Accruing  for  Fiscal  Year 


Yeak 


1897 

1898 

1899 

1900 

1901 

1902 

« 

* 

♦ 

* 

* 

* 

* 

* 

♦ 

* 

* 

* 

* 

* 

♦ 

* 

* 

* 

* 

♦ 

41 

* 

* 

* 

* 

* 

♦ 

« 

« 

* 

* 

* 

* 

* 

* 

* 

* 

* 

m 

* 

* 

* 

* 

* 

* 

♦ 

« 

♦ 

* 

* 

* 

* 

♦ 

♦ 

♦ 

* 

* 

* 

♦ 

* 

* 

♦ 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

* 

1903 


* 
* 
* 


* 

* 
* 


*  Information  lacking. 


4> 


I 


Mil 


*ifc 


'^^ 


298       THE  MAKING  OF  A  SCHOOL  REPORT 

Comparative  Financial  Statistics 

11.    Statistics    Showing    Relations    of    Economy  —  Revenues 

Accrued  —  Continued 


Ybm 


Revenue  Surplus  over  Expenses  In 

CURRED  

Amount  of  Appropriations  Lapsing  at 

the  End  of  Year 

Amount  of  Revenue  Surplus  Remain 

ING  FOR  School  Purposes 

Deficit    (if   the   Exp.    exceed    the 

Revenues) 


1897 


1898 


1899 


1900 


1901 


1903 


1Q03 


*  Information  lacking. 


in.     Statistics  Showing  Relations  of  Economy  —  Comparison 

OF  Service  Rendered  to  Cost 


Average  Cost  of  General  Adminis- 
tration PER  Pupil  per  Year: 

Bd.  of  Education  and  Gen.  Officers.  . 

Administration  of  Dept.  of  Supplies. . 

Building  Superintendence 

Average  of  Total ... 

Average  Cost  of  Superintendence 
and  Instruction  per  Pupil  per 
Year: 

Superintendence 


1897 


* 
* 
* 
* 


1898 


* 

* 
* 


1899 


* 


1900 


* 


1901 


* 


IQ03 


* 

* 


1903 


* 

* 
* 


*  Information  lacking. 


THE  MAKING  OF  A  SCHOOL  REPORT       290 

III.    Statistics  Showing  Relations    of    Economy  —  Comparison 
OF  Service  Rendered  to  Cost — Continued 


Average  Cost  of  Superintendence  and 
Instruction  per  Pupil  per  Year  : 
Teaching  Staff : 
Day  Schools : 

Training  Schools  for  Teachers. . 

High  Schools 

Elementary  Schools 

Grade 

Manual  Training   

Nautical 

Truant 

Evening  Schools 

Recreation  Centres 

Evening  and  Vacation  Schools  to  be 
Reduced   to    Regular   Pupil-day 

Standard 

Average  Cost  of  Lecture  per  Pupil  per 

Hour 

Average  Cost  of  Play  Grounds  per  Pupil 

per  Year  

Average  Cost  of  Building  Operation 
AND  Maintenance  Per  Regular 
Pupil-Day  : 
Operation : 

Salaries 

Supplies 

Maintenance  : 

Grounds 

Buildings 

School  Books  and  Libraries 

Apparatus  and  Machinery 

Other 

Total  Operation  and  Maintenance  . . . 
Total  other  Expenses 


Year 


1897 


* 
* 
* 
* 
* 
* 
* 
* 


* 

* 
* 
* 
* 
* 
* 
* 


1898 


* 
* 
* 
* 

* 
* 
* 
* 


1890 


* 
* 

* 
* 
* 

* 
* 


*  Information  lacking. 


* 

* 
* 

* 

* 


1900 


1901 


* 
* 

* 
* 

* 
* 
* 


* 
* 

* 

* 

* 

* 
* 


* 
* 
* 

* 
* 

* 
* 
* 


* 

* 
* 
* 

* 


190a 


* 

* 

* 
* 
* 
* 


1903 


* 
* 


* 
* 

* 
* 
* 
* 
* 

* 


* 
* 

* 
* 
* 

* 


* 
* 
* 

* 
* 


rrr 


300 


THE  MAKING  OF  A  SCHOOL  REPORT 


Ho  additional 
cost  if  books 
are  kept  to 
give  results 
wanted 


In  offering  suggestions  as  to  schedules  for  final  sum- 
maries of  relations  of  economy,  the  writer  is  aware  of  the 
fact  that  no  definite  formulation  could  be  made  for  statis- 
tical representation  of  results  except  at  a  very  large  cost 
to  the  department,  unless  the  accounts  of 
the  department  be  kept  in  such  a  way  that 
the  footings  of  controUing  items  might  be 
drawn  from  the  books  themselves  without 
recasting  and   without  statistical  research. 
While  from  the  character  of  the  report  made  it  may  be 
inferred  that  the  several  categories  of  information  sug- 
gested might  not  be  readily  answered  from  the  books, 
the  conclusion  is  ventured  without  fear  of  controversy 
that  a  report  containing  a  statistical  statement  having 
reference  to  the  relations  of  economy  here  indicated  is 
necessary  as  a  means  of  enhghtenmg  the  public   and 
giving  to  the  administration  a  basis  for  more  inteUigent 
control. 

In  the  report  of  the  Board  of  Education  Uttlc  or  no 
attempt  is  made  to  give  any  data  with  reference  to  finan- 
cial relations  of  proprietorship.  In  justification  of  this, 
the  fact  may  be  urged  that  the  board  is  simply  an  admin- 
istrative trustee,  whUe  under  the  charter  (Sec.  1055)  the 
No  statement     proprietorship  of  school  properties  is  in  the 

lubmtt"*  '^^y  ^^  ^^^  ^^^^-  ^^  the  other  hand, 
the  board  under  the  same  statute,  being 
made  trustee  for  these  properties  and  being  the  custodian 
by  whom  the  properties  are  held,  is  in  duty  bound  to 
render  to  the  city  of  New  York,  the  cestui  qui  trust,  a 
report  of  its  trusteeship.  The  pubUshed  document  under 
review  bemg  made  for  the  purpose  of  representing  the 
board  m  all  of  its  relations,  proprietary  assets  and  pro- 
prietary Habilities  of  the  city  on  account  of  its  schools 
might  properly  be  exhibited  in  its  financial  statements. 


THE  MAKING  OF  A  SCHOOL  REPORT       301 

Without  this,  many  important  school  relations  may  not 
be  understood.  Even  if  such  a  report  were  exhibited  by 
the  comptroller  of  the  city  of  New  York,  still  it  would 
be  proper  for  the  department  to  include  as  a  matter  of 
completeness  a  showing  of  assets  and  liabilities.  Still 
more  imperative  is  such  a  demand  when  no  well-digested 
and  classified  statement  is  found  in  other  reports. 

The  general  administrative  needs  for  the  keeping  of 
asset  and  Uability  accounts  are  two:   (i)  That  the  data 
may  be  at  hand  for  determining  whether  adequate  allow- 
ances are  being  made  for  expenses  to  keep  the  properties 
in  repair  and  to  maintain  the  educational  plant,  thereby 
protecting  the  city  against  future  expenditure  for  past 
use,  and  (2)  as  a  means  of  recording  the  fideUty  of  agents 
Uses  to  be         into    whose    hands    funds   and   properties 
made  of  such     are  placed  for  use  and  safekeeping.    Other 
statements         incidental  relations  may  be  shown.     For  the 
purposes  of  the  board,  the  city  chamberlain  may  be  con- 
sidered as  a  fiscal  trustee.    For  the  purpose  of  obtaining 
the  revenue  necessary  to  carry  on  schools  the  Board  of 
Estimate  and  Apportionment  and  the  Board  of  Aldermen 
may  be  considered  as  agents  who  have  a  duty  to  perform; 
guide  to  judgment  as  to  whether  they  have  compHed  with 
the  law  and  exercised  proper  discretion  can  come  only 
from  a  complete  financial  statement.     All  funds  belonging 
to  the  schools  and  which  are  to  be  administered  by  the 
Board  of  Education  are  to  be  kept  by  the  city  chamber- 
lain and  disbursed  by  him.    The  report  contains  no  such 
information  as  will  show  whether  either  the  city  chamber- 
lain or  the  board  have  properly  performed  the  duties 
imposed  by  law  in  making  provision  for  school  revenues 
and  dispensing  school  funds.    Again,  for  the  purpose  of 
obtaining  the  funds  provided  under  the  revenue  measures 
above  referred  to,  the  several  departments  of  government 


{; 


m 


302       THE  MAKING  OF  A  SCHOOL  REPORT 

having  charge  of  the  collection  of  taxes,  the  collection  of 
funds  apportioned  to  the  city  by  the  State,  etc.,  stand  in 
fiduciary  relation.     No   showing  is  made   as  to   these. 
Quite  an  extended  showing  is  made  of  the  work  of  the 
Department  of  SuppUes,  but  no  classified  or  systematized 
result  is  given  which  will  bring  these  into  comparative 
relation,  or  which  will  exhibit  to  the  public  official  fidelity. 
Again  attention  is  called  to  the  fact  that  this  commimi- 
cation  is  based  on  an  examination  of  the  report  of  the 
Board  of  Education,  and  of  the  law  under  which  the 
schools  are  operated;  it  does  not  assume  any  knowledge 
either  of  accounts  kept  or  of  peculiar  conditions  existing, 
all  of  which  must  be  brought  to  view  before  arriving  at 
a  final  result.    The  criticisms  and  suggestions  made  pro- 
ceed, rather,  from  a  consideration  of  the  purpose  of  a 
report  in  a  public  corporation  of  such  size  as  to  make  a 
pubUc  statement  necessary,  and  of  the  duties  of  officers 
to  give  an  account  of  their  stewardship.     Nor  is  it  to  be 
said  that  the  officer  is  exonerated  from  a  charge  of  non- 
feasance because  the  pubUc  have  not  made  their  demands 
felt  in  such  a  way  as  to  compel  attention.    A  statement 
that  a  stockholder  does  not  read  a  report  mmie  is  no  rea- 
son to  be  urged  by  an  officer  for  not  making  the  report. 
Conclusion         But  leaving  the  public  demand  for  infor- 
mation  entirely   out  of  the  question,   the 
duty  of  an  officer  to  himself  and  to  aQ  other  officers  and 
admmistrative  agents  to  lay  before  each  other  such  a 
digest  of  activities  and  results  obtained  as  a  basis  for 
the  exercise  of  the  best  discretion  in  directing  the  affairs 
of  a  great  corporation  is  sufficient  reason  for  an  intelligent 
and  comprehensive  report.    At  the  present  time  much 
discussion  is  current  as  to  the  adequacy  of  appropriations 
made  to  maintain  the  schools;  but  how  can  the  Board  of 
Education  complain  at  a  reduction  in  their  estimates  of 


THE  MAKING  OF  A  SCHOOL  REPORT       303 

financial  needs  if  no  report  is  made  which  would  lay  the 
basis  for  intelligent  opinion  as  to  service  and  service 
requirements?  For  a  proper  consideration  of  any  aspect 
of  administration,  a  report  which  embodies  an  inteUi- 
gent  statement  of  all  the  essential  facts  is  necessary.  And 
m  making  such  a  report  the  criterion  as  to  form  and  con- 
tent must  be  the  ends  for  which  the  branch  of  the  ser- 
vice exists.  A  report  which  conforms  to  this  standard, 
which  shows  the  manner  in  which  the  admmistrative 
purpose  is  complied  with,  will  answer  both  the  public  and 
the  corporate  needs.  This  is  not  a  purely  academic 
question.  In  municipal  government  the  demand  of  the 
time  is  for  increased  efficiency.  The  unpotence  of  the 
past  has  been  largely  due  to  lack  of  well-classified  and 
well-digested  information.  Given  this  in  the  form  of 
published  reports,  and  the  largest  and  most  complicated 
municipal  corporation  may  lead  in  measures  of  adminis- 
trative reform. 


11 


METHODS  OF  DEPARTMENT  OF  EDUCATION    305 


-'lii 


CHAPTER  XVIII 

Accounting  Methods  of  the  Department  of  Edu- 
cation OF  the  City  of  New  York* 

The  books  and  records  of  account  of  an  institution 
or  department  must  necessarily  be  determined  by  its 
organization  and  purpose.  The  Board  of  Fxlucation  is, 
by  law,  created  a  distinct  governing  body  and,  as  such, 
is  made  to  "possess  the  powers  and  privileges  of  a  cor- 
poration.'' As  a  distinct  corporation  it  is  charged  with 
the  care  and  the  control  over  "all  properties,  real  and 
personal,  that  now,  or  hereafter,  may  be  acquired  for 
school  or  educational  purposes,  except  the  State  Normal 
School  at  Jamaica";  also  "all  properties,  real  and  per- 
sonal, purchased  for  school  or  educational  purposes  with 
any  school  moneys  whether  derived  from  the  issue  of 
bonds,  or  derived  by  taxation  in  the  city  of  New  York." 
To  the  Board  of  Education  is  also  given 
"  the  management  and  control  of  the  public 
schools  and  of  the  school  system  of  the  city, 
subject  only  to  the  general  statutes  of  the  State  relating 
to  public  schools  and  public  institutions."  With  the 
exception  of  certain  trust  estates,  the  title  to  the  property 
so  controlled  or  operated,  however,  is  vested  in  the  city 
of  New  York,  and  the  Board  of  Education  as  a  depart- 

>  Report  submitted  to  a  special  committee  appointed  by  President 
Ti£Ft  of  the  Board  of  Education  and  later  in  revised  form  to  the 
Committee  on  Accounting  and  Statistics  of  the  Mayor's  Advisory  Com- 
mission on  Finance  and  Taxation. 

304  • 


Character  of 
organization 


ment  of  the  city  government  is  charged  with  the  opera- 
tion of  the  properties  and  is  made  responsible  for  the 
economical  management  of  its  schools. 

Under  the  laws  of  the  State,  and  under  the  charter  from 
which  the  Board  of  Education  derives  its  power,  "the 
corporation"  stands  in  a  double  accounting  relation, 
(i)  Deriving  its  funds  from  the  city  through  the  Board  of 
Estimate  and  Apportionment  it  is  responsible  for  a,  fund 
accounting  to  the  city  in  the  manner  and  according  to 
the  forms  prescribed  by  the  comptroller.  (2)  As  a  dis- 
tinct corporation  it  should  have  an  insti- 
req^irem^nts  tutiond  accounting  of  its  own,  setting  forth 
its  own  assets  and  liabilities,  its  expenses 
and  its  revenues,  in  other  words,  it  should  have  a  system 
of  accounts  which  will  enable  the  board  inteUigently  to 
direct  the  operation  and  management  for  which  it  is 
responsible  as  a  trustee.  Without  such  accounts  the  cor- 
poration is  not  in  a  position  to  protect  the  properties  and 
equipment  under  its  control  against  waste  and  deprecia- 
tion; without  such  an  accounting  there  can  be  no  proper 
basis  for  estimates  of  supplies;  neither  can  there  be  such 
a  control  over  the  several  officers  and  agents  of  the  board 
as  will  hold  them  accoimtable  for  the  funds,  supplies,  or 
other  materials  which  come  into  their  hands.  Unless  the 
liabilities  of  the  board  were  set  up  in  the  form  of  accounts 
there  is  no  basis  for  determining  what  are  the  obligations 
of  the  board,  or  what  balances  remain  unencumbered  in 
the  several  funds  appropriated  to  its  use;  unless  there  be 
a  strict  accoimting  for  expenses  incurred  there  is  no  basis 
for  the  exercise  of  judgment  with  respect  to  efficiency 
or  economy  of  management  in  any  of  its  many  business 
operations.  In  fact,  from  the  point  of  view  of  business 
management  the  Board  of  Education  is  so  far  removed 
from  the  details  of  administration  that  a  complete  asset 


ai 


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II' 


III 


I 


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.,ii.j 


■ 

ikii 


llilil  ii 


TiiHi 


306    METHODS  OF  DEPARTMENT  OF  EDUCATION 

and  liability  accounting  and  a  complete  expense  and  revenue 
accounting  is  as  essential  to  intelligent  administrative 
direction  as  is  such  an  accoxinting  necessary  to  any  active 
corporation  charged  with  the  economic  operation  of  a 
large  business  and  the  faithful  account  for  trust  income 
and  resources. 

A  list  of  current  books  of  account  furnished  by  the 
auditor  of  the  Board  of  Education  is  as  follows: 

(a)  8  Voucher  books. 

(b)  I  General  journal. 

(c)  Sundry  appropriation  ledgers. 
{d)      Sundry  bond  ledgers. 

(e)   I  Special  or  trust  fimd  ledger. 

In  this  list  of  books  of  accoimt  there  is  to  be  foimd 
no  general  ledger,  in  a  sense  that  such  a  term  is  custom- 
arily used  —  i.e.  J  there  was  no  book  or  books  con- 
taining accounts  showing  assets  and  liabilities,  income 
and  expenses,  except  such  liabilities  as  may  be  found  in 
what  is  called  the  "bond  ledger,"  etc.,  and  such  categories 
The  accounts  of  expense  as  are  found  in  the  Appropriation 
kept  by  the  Ledger.  The  accounts  as  kept  are  in  a 
^"^  form   appropriate  to  financial  control  by 

the  comptroller,  but  are  not  in  form  designed  to  obtain 
information  as  a  basis  for  administrative  judgment  with 
respect  to  operation  of  either  the  buildings  or  the  schools. 
Neither  do  they  give  a  proper  basis  for  the  control  of 
construction.  They  give  no  adequate  control  over  prop- 
erties and  supplies.  All  of  the  books  of  general  account 
above  referred  to,  as  indicated  by  the  lists  and  exhibited 
by  the  auditor,  are  in  the  nature  of  books  of  general  account, 
subsidiary  to  and  controlled  by  the  comptroller  of  the  city 
of  New  York.  The  bureau  of  audit  of  the  Board  of  Edu- 
cation, therefore,  may  be  said  to  have  complied  with  the 
legal  requirements  of  accounting  to  the  city  for  funds 


Collateral 
records 


METHODS  OF  DEPARTMENT  OF  EDUCATION    307 

obtained  through  appropriation,  but  so  far  as  could  be 
ascertained  the  board  as  a  separate  and  distinct  corpora- 
tion has  no  system  of  accounts  of  its  own  —  i.e.,  no  general 
controlling  books  which  will  enable  it  to  determine  its 
assets,  its  current  liabiHties,  or  its  true  expenses  and 
operative  cost,  the  economy  or  efficiency  of  management 
for  which  it  is  responsible. 

There  are  kept  by  the  auditor  certain  registers  and 
memoranda  from  which  it  is  attempted  to  get  at  some  of 
the  administrative  results  which  should  be 
currently  obtained  from  a  system  of  opera- 
tive account.  A  hst  of  such  registers  and 
memorandum  books  furnished  by  the  auditor  is  as  fol- 
lows: 

{a)  Claims  registers. 

(6)  Pay-roll  registers. 

(c)  Claimants'  ledgers  (registers). 

(d)  Contract  registers. 
{e)  Insurance  registers. 

(/)  Register  of  hens  and  assignments. 

(jg)  Lease  book. 

{h)  Rent  book. 

(i)  Record  of  checks  canceled. 

(/)   Record  of  sites  in  course  of  acquisition. 

{k)  Books  showing  appropriations  —  building  com- 
mittee. 

The  foregoing  registers  or  records,  however,  are  not 
in  a  true  sense  subsidiary  to  controUing  operative  accounts 
of  the  board  as  a  distinct  corporation.  In  a  number  of 
instances  they  are  not  footed  and  closed  into  general 
ledger  accounts.  Being  thus  uncontrolled,  there  is  no 
direct  accounting  method  for  readily  determining  whether 
the  results  obtained  or  shown  on  these  registers  are  ac- 
curately stated,  except  as  control  is  obtained  through  the 


I    'iir:i,, 

!il  Hi:; 


m 


W    I 


308    METHODS  OF  DEPARTMENT  OF  EDUCATION 

accounts  subsidiary  to  the  books  of  the  comptroUer  of 
the  city  of  New  York. 

As  a  means  of  obtaining  statistical  exhibits  of  data 
pertaining  to  expenses  and  of  satisfying  the  demands  of 
committees  for  information  of  this  character, 
Financial 8ta-     ^^rious  books  or  tables  of  "analysis"  are 
*^**"  kept.    These  books  or  tables  are  listed  by 

the  auditor  as  follows: 

(a)  Analysis  —  general  school  f imd. 

(b)  Analysis  of  janitors'  salaries. 

(c)  Analysis  of  salaries  of  officers,  clerks,  and  other 

employees. 

(d)  Analysis  of  salaries  of  inspectors,  draftsmen,  etc. 

(e)  Analysis  of  the  incidental  fund. 
(/)  Analysis  of  fuel  fund. 

(g)  Analysis  of  repair  account. 

(h)  Analysis  of  printing  bills. 

It)   Record  of  the  supervising  and  teaching  force. 

In  many  instances  these  analyses,  in  so  far  as  they 
register  a  true  statement  of  classified  "expenses  incurred," 
have  been  obtained  by  indirect  statistical  methods  instead 
of  being  taken  directly  from  general  or  subsidiary  ledger 
accounts  of  the  board.  To  a  considerable  degree,  how- 
ever, they  do  not  correctly  state  "expenses  incurred." 
They  are  rather  a  recapitulation  of  cash  expenditures  for 
different  classes  of  objects,  as  taken  from  the  voucher 
records  subsidiary  to  the  office  of  the  comptroller,  and  do 
not  correctly  state  the  "expenses"  for  any  particular 
period.  For  example:  The  analysis  of  the  fuel  account 
showed  the  amount  of  cash  paid  for  supplies  in  the  nature 
of  fuel  during  a  particular  ])eriod.  In  the  office  of  auditor, 
however,  there  is  no  attempt  made  to  show  how  much  fuel 
has  been  used.  If  we  are  to  obtain  a  comparative  state- 
ment of  expenses  of  operation  of  the  different  buildings, 


METHODS  OF  DEPARTMENT  OF  EDUCATION    309 

when  coal  is  purchased  and  stored  in  large  quantities, 
the  fact  that  the  board  buys  a  thousand  tons  of  coal  for 
school  No.  I,  and  only  five  hundred  tons  for  school  No. 
2,  is  no  reason  for  setting  up  the  cost  of  this  coal  as  an 
expense  of  the  year  in  which  the  purchase  was  made. 
The  administrative  situation  may  be  that  school  No.  i 
has  burned  only  five  hundred  tons,  and  school  No.  2  has 
burned  one  thousand  tons.  So  long  as  the  coal  is  on 
hand  it  is  not  expense,  but  is  in  the  nature  of  an  asset. 

In  determining  the  cost  of  operating  a  building,  it  is 
only  such  amount  of  fuel  as  is  burned  within  a  given  time 
that  is  chargeable  to  the  expenses  of  that  period.  For  the 
purpose  of  administration,  the  expense  accounts  should, 
therefore,  show  the  amount  of  coal  burned.  As  a  matter 
of  fimd  accounting,  it  is  true  that  the  board  should  report 
to  the  comptroller  through  its  audited 
vouchers  the  amount  of  coal  purchased ;  it  is 
this  latter  accounting  only  that  was  kept  by 
the  auditor,  the  same  information  being  obtained  by  him 
that  is  required  by  the  comptroller  to  be  reported  to  the 
board.  To  obtain  an  accurate  view  of  the  fuel  expenses 
of  each  school  as  a  basis  for  judgment  as  to  economy  of 
administration  would  require  only  that  a  fuel  stock  account 
be  adjusted  by  inventory;  this  seemed  not  to  have  been 
done  —  in  fact,  there  was  no  provision  in  the  scheme  of 
accounting  for  obtaining  an  administrative  accounting  for 
the  several  classes  of  operation  and  expenses  for  supplies 
used.  By  taking  the  administrative  expense  data  from 
requisitions  on  the  supply  department,  instead  of  setting 
up  the  cost  data  from  invoices,  true  expense  accounts 
might  be  set  up  with  each  school  for  the  several  classes 
of  supplies.  This  would  give  an  accurate  basis  for  ad- 
ministrative judgment  both  as  to  suppHes  on  hand  and 
as  to  materials  used,  and  this  might  be  done  with  less 


False   basis 
for  expenses 


\- 


m 


m 


i 


ii 


310    METHOD^  OF  DEPARTMENT  OF  EDUC:ATI0N 

clerical  work  than  is  at  present  involved  in  the  keeping 
of  the  accounts  and  making  up  the  statistical  reports 
required. 

In  defense  of  this  method  it  has  been  stated  that  the 
analyses  furnished  are  close  enough  for  all  practical  pur- 
poses. But  at  the  same  time,  the  auditor  admits  and 
openly  states  that  his  staff  is  constantly  involved  in  mak- 
ing special  investigations  and  rendering  special  reports 
which  should  be  obtained  currently  from  the  accounts 
infonnatiott  themselves.  This  is  the  chief  purpose  for 
not  taken  from  which  the  departmental  accoimts  should  be 
the  accounts  jj^^p^^  Accuracy  of  analyses  and  statements 
with  respect  to  administrative  expenses,  as  well  as  financial 
results,  is  fundamental  to  administrative  accounting. 
Principles  of  administrative  accounting  seem  to  be  applied 
to  no  part  of  the  records  in  the  ofl5ce  of  the  auditor,  ex- 
cept in  so  far  as  they  reflect  the  dealings  of  the  board 
with  the  city  chamberlain  as  controlled  by  the  city  comp- 
troller. 

THE   CHARACTER   OF   DATA   ON   WHICH   THE   ADMINISTRA- 
TION MUST  RELY 

In  default  of  a  system  of  controlling  accounts  in  the 
office  of  auditor  showing  the  true  financial  condition  and 
the  true  expenses  of  the  board  as  a  distinct  corporation, 
the  several  committees  having  charge  of  such  portions 
of  the  business  of  the  board  as  may  be  assigned  to  them 
Memoranda  must  rely  largely  on  the  books  and  memo- 
kept  by  randa  kept  in  the  several  bureaus  through 
^«*^  which  the  business  of  the  board  is  conducted. 
For  example:  It  was  stated  by  the  chairman  of  the  Com- 
mittee on  SuppHes,  that  when  this  committee  desires 
to  know  the  amount  of  orders  outstanding  against  a  cer- 
tain appropriation  as  a  means  of  determining  what  amount 


METHODS  OF  DEPARTMENT  OF  EDUCATION    311 

of  a  particular  fund  is  still  unencumbered  or  available, 
the  information  cannot  be  obtainable  from  the  Bureau 
of  Audit  but  must  be  had  from  memoranda  kept  by  the 
Bureau  of  Supplies. 

It  is  further  stated  that  there  is  no  account  in  the 
general  books  of  the  department  showing  amounts  to  be 
reserved  to  cover  contingent  HabiHties  on  orders  given, 
although  the  information  is  furnished  to  the  auditor  for 
setting  up  such  a  reserve.  The  law  governing  the  com- 
mittees and  officers,  charged  with  making 
records  ^  *  purchases,  requires  that  no  orders  shall  be 
given  in  excess  of  the  amount  appropriated. 
For  information  as  to  orders  outstanding,  or  the  amount 
of  the  fund  that  is  encumbered  by  such  orders,  we  are 
informed,  reliance  must  be  on  memoranda  kept  outside 
of  the  bureau  of  audit,  this  memoranda  being  uncon- 
trolled by  the  auditor. 

Again  we  were  informed  by  a  member  of  the  Com- 
mittee on  Sites  that  if  they  desire  to  know  what  is  the 
contingent  liability  or  encumbrance  on  the  funds  set  aside 
for  the  purchase  of  sites,  they  must  obtain  this  knowledge, 
if  at  all,  from  an  uncontrolled  register.  Even  this  sites 
register  did  not  exist  until  after  the  present  investigation 
was  begun.  By  several  members  of  the 
board  we  were  informed  that  for  informa- 
tion pertaining  to  assets,  current  liabihties 
and  many  forms  of  expenses  incurred,  the  president  of 
the  board  and  the  chairman  of  the  various  committees 
must  rely  on  registers,  which  are  imcontrolled  by  general 
ledger  accounts,  many  of  which  registers  are  not  kept  in 
the  oflSce  of  the  auditor.  Instead  of  getting  information 
from  the  accounting  department  it  would  seem  that  the 
directing  heads  of  the  Board  of  Education  are  compelled 
to  ferret   out   the  places  where  memoranda   are   kept 


Incomplete 
data 


• 


■1 


f 


V        4 


m 


312    METHODS  OF  DEPARTMENT  OF  EDUCATION 

designed  to  supply  the  several  departments  with  infor- 
mation needed  in  the  conduct  of  their  business,  such 
information  not  being  available  in  the  Bureau  of 
Accounts. 

LACK  OF  UNITY   IN  THE  SYSTEM 

The  purpose  of  the  school  system  is  to  educate.  As  a 
means  to  this  end  there  is  provided  a  staff  or  corps  of 
educators,  and  physical  equipment  and  supplies;  both  are 
necessary  to  carry  on  the  work.  In  the  organization  of 
the  institution  the  charter  has  provided  that  all  of  the 
affairs  of  the  public  schools  shall  be  placed  in  the  hands 
and  under  the  control  of  a  corporation  known  as  the 
Board  of  Education.  The  charter  further  pro\ddes  that 
the  corps  or  staff  of  instruction  shall  be  administered  by 
Division  of  ?  ^^^^  superintendent,  and  that  the  admin- 
responsibUity  istration  of  the  physical  equipment  shall  be 
divided  between  two  bureaus;  the  first 
(the  superintendent  of  buildings)  having  charge  of  the 
buildings  or  permanent  equipment,  and  the  second  (the 
superintendent  of  supphes)  having  charge  of  the  furnish- 
ing of  those  educational  materials  and  supplies  currently 
used  or  consumed.  Each  of  these  three  departmental 
heads  has  a  specific  function  to  perform;  all  of  them, 
however,  are  subsidiary  to  the  controlling  administrative 
purpose  —  education  —  which  is  under  the  directive 
management  of  the  board. 

The  efficiency  with  which  the  board  is  able  to  organize, 
equip,  and  direct  an  institution  conducting  over  five 
hundred  distinct  educational  plants,  carrying  on  various 
classes  of  instruction  and  having  differing  physical 
educational  requirements  involving  annual  disbursements 
exceeding  twenty-five  millions  of  dollars,  depends  on  the 
installation  of  a  system  which  will  bring  each  of  these 


METHODS  OF  DEPARTMENT  OF  EDUCATION    313 

various  departments  and  each  of  the  educational  activities 
Lack  of  central  within  the  knowledge  of  the  board.  The 
administrative  records  kept  by  the  several  departments  or 
purpose  bureaus  of  the  board  have  not  been  installed 

with  reference  to  a  central  and  administrative  purpose. 
The  administrative  work  of  the  board  has  been  largely 
delegated  to  committees.  These  committees  have  borne 
no  direct  accounting  or  statistical  relation  to  the  several 
bureaus  or  departments.  Generally  speaking,  each  of 
the  departments  or  bureaus  seem  to  have  built  up  a  sys- 
tem of  record  and  statistical  analysis  to  suit  its  own  pur- 
pose, havmg  little  regard  for  the  interdependence  which 
exists  between  the  several  parts  of  the  institution  as  a 
whole.  The  records  and  statistics  of  one  department, 
in  many  instances,  may  not  be  used  in  gettmg  at  the  results 
or  as  a  basis  for  directing  the  affairs  of  another  bureau 
Records  of  ^^  department.  For  example:  We  were 
one  department  informed  that  as  a  means  of  effecting  econ- 
not  coordinated  omy,  the  department  of  buildings,  under 

with  others  j    .  r  ^      ^         ,  .,  °      . 

advice  of  competent  architects  or  engineers, 
has  during  the  last  year  installed  a  large  number  of  water 
heaters,  but  that  owing  to  the  lack  of  a  system  which  pro- 
ceeds from  a  unity  of  purpose  m  administration,  no  infor- 
mation as  to  the  fact  that  water  heaters  had  been  put  in 
came  to  the  knowledge  of  the  Bureau  of  SuppHes  imtil 
after  the  Budget  for  1906  had  been  made  up,  when  a 
request  was  received  that  the  Bureau  of  Supplies  furnish 
from  four  to  five  hundred  tons  of  coal  with  which  to  rim 
these  water  heaters.  The  Committee  of  Supplies  having 
no  knowledge  of  the  intention  of  the  building  bureau  to 
make  such  an  installation  could  make  no  provision  for 
this  extra  quantity  of  coal  in  the  Budget  of  1906. 

Furthermore  there  is  no  provision  made  by  the  board 
for  harmonizing  or  unifying  the  records  kept  by  the  various 


■ 


v 


■I' 


314    METHODS  OF  DEP.\ttTMENT  OF  EDUCATION 

departments  or  bureaus,  there  being  no  central  office  or 
bureau  in  which  is  brought  together  this  information. 
As  a  means  of  more  efifectively  directing  the  educational 
corps,  the  city  superintendent  has  brought  together  in 
his  own  office  much  of  the  information  collected  by  the 
Bureau  of  Supplies,  the  Bureau  of  Buildings,  the  Bureau  of 
Audit,  etc.  This  has  been  made  necessary  owing  to  the 
failure  on  the  part  of  the  board  to  introduce  a  central  or 
Difficulty  in  Unified  system.  Even  when  each  depart- 
obtaining  com-  ment  seeks  to  obtain  information  for  itself, 
parable  facts  ^  ^^^g  ^.j^g  ^j^y  superintendent,  great  diffi- 
culty is  experienced  in  getting  comparable  data  for  the 
reason  that  the  records  have  Uttle  unity  of  p>urpose,  and 
little  central  control.  The  administrative  system  has 
proceeded  from  the  departments,  or  from  the  circum- 
ference toward  the  centre,  instead  of  being  designed  and 
promulgated  by  the  board ;  in  most  instances  the  systems 
existing  in  the  departments  have  fallen  short  of  the  mark 
—  they  have  not  reached  the  central  office,  nor  are  they 
available  for  the  general  purposes  of  the  board. 

LACK  or  COOPERATION 

Without  a  unified  system  of  administration  there  cannot 
be  intelligent  cooperation  between  the  several  branches. 
Evidences  of  want  of  cooperation  were  many.  A  few  of 
the  many  examples  coming  to  our  attention  are  here 
given.  Owing  to  the  failiire  of  the  auditor  to  cooperate, 
the  superintendent  of  the  Bureau  of  Supphes  is  required 
to  maintain  books  dealing  with  various  funds  against 
On  the  part  of  which  orders  are  issued,  so  that  the  work 
the  Bureau  of  of  the  department  may,  at  all  times,  pro- 
^^^^^  ceed  without  delay  and  in  accordance  with 

the  law  requiring  funds  to  be  available  before  an  order 
is  issued.    Whatever  books  might  be  kept  in  the  Bureau 


METHODS  OF  DEPARTMENT  OF  EDUCATION    315 

of  Supplies  for  the  guidance  of  the  superintendent,  the 
committee  having  direction  over  this  department  should 
receive  its  information  from  an  authoritative  source  and 
the  books  of  the  bureau  should  be  purely  subsidiary  to 
those  kept  by  the  auditor. 

Another  instance  of  lack  of  cooperation  has  to  do  with 
the  relation  of  education  to  supplies.  The  first  intima- 
tion the  Bureau  of  Supplies  receives  that  workshops, 
kitchens,  and  kindergartens  are  to  be  opened  (thereby 
requiring  equipment  and  supplies)  comes  through  the 
presentation  to  the  board  by  the  Board  of  Superintend- 
ents of  recommendation  to  that  effect,  without  previous 
conference  on  financial  ability  and  without  regard  to 
budgetary  estimates.  WTiile  the  Budget  of  1905  was  cut 
On  the  part  of  SO  far  as  (in  the  judgment  of  the  Committee 
the  Board  of  on  Supplies)  to  debar  the  equipment  or 
Superintendents  supplying  of  any  new  work-shops,  kitchens 

or  kindergartens,  during  that  year  the  Board  of  Super- 
intendents continued  to  recommend  the  installation  of  those 
new  activities  until  formally  notified  that  they  could  not 
be  granted.  Another  illustration  of  the  same  kind:  Al- 
though the  Board  of  Superintendents  had  not  presented 
any  plans  for  such  features  to  the  Committee  on  Supplies 
when  preparing  the  Budget  of  1905,  they  carried  out  plans 
for  the  opening  of  a  new  evening  trade  school  in  the 
Manual  Training  High  School  building.  Borough  of 
Brooklyn,  which  called  for  many  kinds  of  special  supplies 
not  on  the  list.  Another  Evening  Trade  School  in  the 
Bryant  High  School,  Borough  of  Queens,  and  still  another 
in  the  Morris  High  School  Building,  Borough  of  Bronx, 
was  said  to  have  been  founded  by  the  Board  of  Superin- 
tendents under  similar  conditions.  The  chairman  of 
your  committee  was  told  that  the  first  information  that 
the  Committee  on  Supplies  of  the  Board  of  Education  had 


mi 


316    METHODS  OF  DEPARI MENT  OF  EDUCATION 

of  these  acts,  and  that  supplies  would  be  required,  was 
when  the  requisitions  were  received  in  the  Bureau  of 
Supplies.  The  superintendent  of  the  Bureau  of  Supplies 
states  that  he  was  able  to  provide  the  materials  requisi- 
tioned, but  only  through  shifting  his  plans  and  making 
difiFerent  arrangements  than  had  been  contemplated  at 
the  time  that  the  plans  were  made  for  the  year's  busi- 
ness; in  order  to  have  the  sup])lies  on  hand  on  the  open- 
ing day,  or  as  near  to  that  date  as  possible,  much  of  the 
time  of  the  department  was  consimied  in  extraordinary 
measures  for  obtaining  those  things  which  were  not  on 
the  list  and  not  available  at  the  time  the  request  was 
made. 

We  are  informed  that  it  frequently  has  happened  that 
changes  in  the  course  of  study  made  without  cooperation 
between  the  Board  of  Superintendents  and  the  Depart- 
ment of  Supplies  causes  undue  disturbance  and  that 
these  changes  are  made  without  consideration  of  the 
contingent  loss  or  expense  involved.  In  the  year  1904,  at 
the  request  of  the  Bureau  of  Supplies,  the  rei)resentatives 
of  the  Board  of  Superintendents  furnished  the  Bureau  of 
Supplies  with  a  list  of  books  lying  idle  in  the  schools 
because  of  such  changes.  These  represented  about 
125,000  volumes.  It  is  represented  that  had  there  been 
cooperation  between  the  Board  of  Superintendents  and 
the  Bureau  of  Supplies,  many  of  these  volumes  might 

have  been  used  instead  of  books  which  were 
vicrrender^'     purrently  purchased  while  they  were  lying 

idle;  that  upon  the  information  thus  fur- 
nished the  Bureau  of  Supplies  was  able  afterwards  to 
utilize  a  large  nimiber  of  the  books  thus  discovered, 
saving  the  board  a  proportionate  amount  in  expense  for 
the  purchase  of  new  books.  In  the  demands  made  by 
principals  for  additional  appropriations  in  1905,  the  state- 


Ill 


METHODS  OF  DEPARTMENT  OF  EDUCATION    317 

ment  was  frequent  that  the  additional  appropriations  were 
needed  by  reason  of  changes  in  the  course  of  study  ren- 
dering many  of  the  books  on  hand  useless.  So  many 
were  these  applications  that  the  principals  were  asked  for 
a  list  of  books  laid  aside  because  of  changes  in  the  course 
of  study.  This  notice  was  sent  out  October  6,  1905.  A 
compilation  of  the  reports  received  up  to  October  20 
shows  that  there  were  sixty-two  thousand  volumes  thus 
affected. 

A  further  illustration  of  lack  of  cooperation  between 
the  educational  and  supply  branches  of  the  board  is 
found  in  the  provisions  made  for  the  opening  of  work- 
shops in  Public  Schools  15,  91,  and  112.  For  carrying 
on  the  educational  work  the  organization  had  gone  so 
far  as  to  have  teachers  appointed,  but  there  were  no  sup- 
plies provided  and  no  information  given  to  the  Bureau 
of  Supplies  that  these  would  be  needed  until  actual  requi- 
sitions were  received.  On  receipt  of  this  request,  the 
Bureau  of  Supplies,  pursuant  to  the  duties  imposed  upon 
it,  was  required  to  hold  up  the  requisition  long  enough 
Work  of  to    determine   whether    the    teachers    had 

schools  ham-  been  appointed.  Such  information  being 
^'*^  received,  the  Committee  on  Supplies  then 

ordered  that  the  bureau  furnish  to  these  work-shops  re- 
duced quantities  in  order  to  keep  the  teachers  from  lying 
idle  and  the  plans  made  by  the  Board  of  Superintendents 
from  becoming  inoperative.  The  opening  of  work-shops 
and  other  educational  functions  without  notice  even  of 
intention  given  to  the  bureau  upon  which  falls  the  burden 
of  supplying  the  materials  necessary  to  its  successful 
operation  does  not  seem  to  comport  with  efficient  admin- 
istration nor  with  any  intelligent  scheme  of  control.  The 
action  above  indicated  is  reported  as  having  been  taken 
by  the  Board  of  Superintendents  notwithstanding  the 


m^ 


318    METHODS  OF  DEPARTMENT  OF  EDUCATION 

fact  that  the  Committee  on  Supplies  had  notified  the 
Board  of  Superintendents  that  on  account  of  the  appropria- 
tion allowed  in  1904,  there  would  be  no  funds  available 
for  new  work-shops  and  kitchens.  Examples  might  be 
multiplied.  The  above  illustrations  are  given  simply  to 
call  the  attention  of  your  committee  to  the  nature  of  this 
lack  of  cooperation  and  to  the  manner  in  which  it 
hampers  the  work  of  the  bureaus  and  stands  in  the  way 
of  efifective  direction  by  the  board. 

DEFECTS  IN  CLASSIFICATION 

For  the  purposes  of  statistics  and  accounting,  classifica- 
tion means  that  things  similar  or  related  administratively 
shall  be  brought  together  or  counted  as  within  one  class. 
In  the  general  accounts  and  statistical  summaries  these 
several  similar  classes  may  be  brought  together  in  such 
manner  that  the  institution  may  be  intelligently  viewed 
as  a  whole.  Both  of  these  processes  are  necessary  to 
intelligent  thought  concerning  an  institution  having  as 
many  different  activities  and  departments  as  the  Board 
of  Education.  If  it  is  desirable  to  know  the  numbers  of 
children  attending  school  by  ages  it  is  necessary  to  classify 
the  children  in  each  of  the  schools  according  to  age  and 
then  to  coordinate  the  similar  classes  of  the  various 
schools  as  a  means  of  informing  the  board  and  all  persons 
connected  with  or  interested  in  the  work  how  many 
children  there  are  of  a  given  age  attending  the  public 
Advantage  of  schools  in  the  city  of  New  York.  These 
uniform  cias-  children  being  so  classified,  then  other 
SI  cation  classified  information  such   as  courses  of 

study  given,  ages  by  grades,  graduations,  failures  to  pass 
examinations,  cost  of  study,  etc.,  may  be  related.  But 
the  ability  to  coordinate  depends  on  uniformity  of  classi- 
fication, cooperation  between  those  in  charge  of  the  several 


METHODS  OF  DEPARTMENT  OF  EDUCATION    319 

schools  and  divisions,  classification  within  the  school, 
and  a  central  bureau  or  office  for  the  collection  of  the 
facts  to  be  coordinated.  This  applies  to  all  information, 
physical,  operative,  or  financial,  which  is  needed,  either 
for  the  guidance  of  the  superintendents,  for  the  infor- 
mation of  the  several  bureaus,  or  for  intelligent  direction 
by  the  boards  and  committees  of  the  board. 

As  a  means  of  thinking  intelligently  about  the  question 

Sites  °^  ^^^^^  ^  classification  of  the  physical  data 

is   necessary   in  order  that  operative  and 

financial  data  may  be  understood.    The  board  may  wish 

information  of  the  following  kind: 

(i)  Sites  for  administrative  purposes: 

(a)  Location. 

(b)  Size: 

(i)  Space  occupied  by  building. 
(2)  Space  not  utilized. 

(c)  Ownership: 
(i)  By  city. 
(2)  Leased. 

(2)  Sites  for  purposes  of  instruction: 
(fl)  Location. 

(b)  Size: 

(i)  Space  occupied  by  building. 

(2)  Space  occupied  by  playground. 

(3)  Space  of  driveways  and  approaches. 

(4)  Space  not  utilized. 

(c)  Ownership : 
(i)  By  city. 
(2)  Leased. 

If  such  information  is  desirable,  it  should  be  indicated 
by  the  board  and  a  classification  of  data  presented  which 
will  require  all  bureaus  and  departments  to  so  organize 
the  operative  and  financial  data  coming  within  the  scope 


.If 


320    METHODS  OF  DEPARTMENT  OF  EDUCATION 

of  their  duties  on  such  lines  that  these  may  be  corre- 
lated; assuming  that  the  above  indicated  physical  statis- 
tics pertaining  to  sites  were  desirable,  then  the  financial 
statistics,  building  statistics,  etc.,  should  be  so  classified 
as  to  enable  the  board  to  utilize  them  for  their  own  infor- 
mation. 

Again  the  board,  its  committees,  and  the  several  officers 
BuUdings  ?^  administration  have  to  deal  with  build- 

ings.   As  a  basis  for  administration  some 
such  information  as  the  following  might  be  considered 
advantageous: 
Buildings: 

(i)  For  administration: 
(a)  When  buih. 
(6)  Character  of  structure: 
(i)  Wood. 

(2)  Brick. 

(3)  Stone. 

(4)  Combination  (wood,  brick,  or  stone). 

(c)  Number  of  stories,  including  basement. 

(d)  Nimiber  of  rooms: 
(i)  For  offices. 

(2)  Assembly  halls,  etc. 

(3)  For  vaults  and  storage  purposes. 

(4)  For  mechanical  plant. 

(5)  Other  rooms  us^. 

(6)  Rooms  not  used. 

(e)  Cubic  space: 

(i)  For  office  rooms,  (i)  total;    (2)  number 
rooms,  (3)  per  cent  whole. 

(2)  Of  assembly  rooms,  etc.  (i)  total;    (2) 

number  rooms,  (3)  per  cent  whole. 

(3)  Of  library  rooms,  (i)  total;    (2)  number 

rooms,  (3)  per  cent  whole. 


METHODS  OF  DEPARTMENT  OF  EDUCATION    321 

(4)  For  mechanical  plant,  (i)  total;  (2)  num- 

ber rooms,  (3)  per  cent  whole. 

(5)  Other  rooms  used,  (i)  total;   (2)  nimiber 

rooms,  (i)  per  cent  whole. 

(6)  Rooms  not  used. 
(/)   Area: 

(i)  Of  foundation. 

(2)  Floor  space. 

(3)  Exposure. 

(4)  Enclosed  wall  space  and  ceilings. 

(5)  Hall  areas. 

(6)  Stair  areas  (horizontal  space.) 
(2)  For  educational  purposes: 

(a)  When  buih. 

(b)  Character  of  structure: 
(i)  Wood. 

(2)  Brick. 

(3)  Stone. 

(4)  Combination. 

(c)  Number  of  stories,  including  basement. 

(d)  Number  of  rooms: 

(i)  For  school  purposes. 

(2)  For  office. 

(3)  For  Ubrary  rooms. 

(4)  For  gymnasium  or  enclosed  playground. 

(5)  Locker  and  dressing-rooms. 

(6)  For  mechanical  plant. 

(7)  For  storage. 

(8)  Other  rooms  used. 

(9)  Rooms  not  used. 

(e)  Cubic  space: 

(i)  Of  school  rooms,  (i)  total;    (2)  number 
rooms;  (3)  per  cent  whole. 


f 


32 


U'ifl 


32«    METHODS  OF  DEPARTMENT  OF  EDUCATION 

(2)  Of  office  rooms,   (i)  total;    (2)  number 

rooms;  (3)  per  cent  whole. 

(3)  Of  library  rooms,  (i)  total;  (2)  number 

rooms;  (3)  per  cent  whole. 

(4)  Of  gymnasium  and  enclosed  playground, 

(i)  total;    (2)  per  cent  whole. 

(5)  Locker  and   dressing  rooms,    (i)  total; 

(2)  per  cent  whole. 

(6)  For  mechanical  plant,  (i)  total;    (2)  per 

cent  whole. 

(7)  For  storage,  (i)  total;  (2)  per  cent  whole. 

(8)  Other  rooms  used,  (i)  total;  (2)  per  cent 

whole. 

(9)  Rooms  not  used,  (i)  total;  (2)  per  cent 

whole. 
(/)   Area: 

(i)  Of  foundation. 

(2)  Floor  space. 

(3)  Exposure. 

(4)  Enclosed  wall  space  and  ceilings. 

(5)  Hall  area. 

(a)  Total. 

(b)  Per  seating  capacity. 

(6)  Stair  space: 

(a)  Total. 

(b)  Per  seating  capacity. 
(i)  Light  space: 

(i)  Total  light  space: 
(o)  Unobstructed. 
(b)  Obstructed: 
(i)  Exterior. 
(2)  Interior. 
(2)  Light  space  per  one  hundred  cubic  feet 
of  school  rooms. 


METHODS  OF  DEPARTMENT  OF  EDUCATION    323 

{h)  Sittings; 

(i)  Sitting  capacity  of  school  rooms. 
(2)  Actual  sittings: 

(a)  Complete. 

(b)  Incomplete. 

Information  of  this  kind  is  available  to  the  board  if  it 
were  collected  and  classified.  With  some  such  classifica- 
tion of  the  physical  data  pertaining  to  buildings,  and  with 
financial  data  so  classified  that  these  might  be  coordinated, 
the  Board  of  Education  might  determine  what  is  the  rate 
of  depreciation  on  structures  of  wood,  of  brick,  and  of 
stone;  it  might  definitely  show  to  the  Board  of  Estimate 
and  Apportionment  what  is  necessary  to  be  appropriated 
for  the  purpose  of  preventing  depreciation  of  the  struc- 
ture; it  might  also  be  known  what  building  space  has 
Advantage  of  been  made  available  for  purposes  of  in- 
ciassified  in-  struction  as  distinct  from  administration  — 
formation  ^Yig^t  have  been  the  provisions  for  offices, 

for  Ubraries,  for  gymnasia  and  playgrounds,  for  lockers 
and  dressing-rooms,  for  mechanical  plants,  for  storage 
and  other  uses  to  which  buildings  are  put;  the  board  might 
also  know  what  have  been  the  provisions  made  for  health; 
by  having  the  cubic  air  space  and  floor  space  a  standard 
might  be  estabUshed  for  estimating  the  economy  of  heat- 
ing, ventilatmg,  caretaking,  etc.;  by  having  the  seating 
capacity  of  each  room  and  the  actual  sittings  it  might  be 
known  whether  or  not  there  is  any  space  available  for 
new  sittings.  From  any  point  of  view  the  classification 
of  data,  educational  and  financial,  seems  to  be  defective 
in  that  the  classification  used  in  one  department  is  not 
such  as  to  make  the  information  at  all  times  available 
to  the  other  departments. 

Whatever  may  be  the  basis  of  classification  it  should  be 
appHed  to  the  physical,  the  financial,  and  the  educational 


Basis  of 
classification 


324     METHODS  OF  DEPARTMENT  OF  EDUCATION 

in  such  a  way  that  all  of  these  results  may  be  brought  to- 
gether. For  the  information  of  the  board, 
and  to  the  end  of  intelligent  administration] 
the  classification  should  be  broad  enough 
to  answer  every  question  to  be  asked  by  the  board,  by 
its  committees,  or  by  the  several  bureaus  of  administration. 
To  attempt  to  say  wherein  the  classification  in  any  par- 
ticular bureau  is  defective  would  assume  suj)erior  knowl- 
edge as  to  what  the  board,  its  officers,  or  the  pubhc  wish 
to  know.  That  the  classification  is  not  uniform  and  may 
not  be  coordinated  appears  on  the  face  of  the  records. 
It  also  appears  that  the  classification  which  has  been 
established,  in  many  instances  is  not  used.  An  example 
of  this  is  found  in  the  form  on  which  the  various  prmcipals 
report  to  the  superintendent. 

Looking  toward  the  need  for  further  equipment,  one  of 
the  questions  of  primary  importance  to  the  sui)erintendent, 
to  the  Board  of  Education  as  well  as  the  Board  of  Esti- 
mates and  Apportionment,  is  that  of  sittings.  The  only 
way  that  there  may  be  any  inteUigent  judgment  as  to 
sittings  available  is  to  get  at  the  sittings  not  in  use  hy  grades. 
This  information  is  returned  by  the  principals,  but  it  is 
not  regularly  coordinated  in  the  department.  On  in- 
quiry as  to  how  much  time  it  would  require  for  those 
coordinatmg  the  reports  of  principals  to  state  the  vacant 
sittings  by  grades,  we  were  informed  that  it  would  be  very 
difficult  to  do  in  the  present  condition  of  the  records,  but 
that  if  this  information  were  drawn  off  currently  at  the 
time  the  reports  were  analyzed  it  would  be  a  very  simple 
matter  and  would  require  Httle  or  no  additional  clerical 
force. 

Under  the  present  method  of  obtaining  information,  it 
very  frequently  happens  that  a  special  statistical  investi- 
gation is  necessary,  to  lay  before  the  board  or  before  the 


METHODS  OF  DEPARTMENT  OF  EDUCATION    325 

public,  information  which  should  be  currently  stated  on 
the  face  of  the  records,  and  which  should  be  so  stated  if 
the  character  of  the  information  to  be  obtained  were 
made  a  subject  of  consideration  and  cooperation  between 
the  board  and  the  several  departments.  As  has  been 
before  stated,  defects  in  classification  and  coordination 
are  also  found  in  the  accounts.  In  the  office  of  auditor 
the  general  journal  and  the  several  registers  are  books 
of  classification.  In  many  instances  these  do  not  have 
in  mind  the  character  of  information  required  for  admin- 
istrative purposes,  as  a  result  of  which  a  large  part  of  the 
time  of  the  clerical  and  supervising  staff  is  taken  up  in 
the  preparation  of  special  reports;  in  fact,  this  was  one  of 
the  serious  burdens  complained  of  by  the  auditor. 

It  being  assxmied  that  the  purpose  of  the  inquiry  on  the 
part  of  the  mayor  in  the  appointment  of  an  advisory  com- 
mission is  to  determine  what  is  necessary  to  obtain  friendly 
cooperation  among  the  several  bureaus  and  committees  of 
a  department  and  to  bring  about  an  improve- 

A  restatement  i.  •     ^.v  .  e  .  i      i     . 

of  conclusions  ^^^^  ^°  ^^^  system  of  accounts  and  admm- 
istration  such  as  will  give  to  him  an  intelli- 
gent basis  for  control,  without  going  into  further  details, 
the  defects  in  the  records  and  administrative  methods  of 
the  board  may  be  summarized  as  follows: 

(i)  The  Board  of  Education  as  a  separate  and  distinct 
corporation  seems  to  have  no  well-devised  system  of  gen- 
eral accounts  reflecting  its  corporate  financial  relations  — 
its  assets  J  its  liabilities,  or  administrative  relations  of  cur- 
rent expenses  —  such  accounts  as  are  kept  being  in  the 
nature  of  accounts  with  funds  controlled  by  the  comp- 
troller of  the  city  of  New  York. 

(2)  The  books  and  records  kept  by  the  several  bureaus 
and  committees  for  the  guidance*  of  administrative  heads, 
and  for  the  information  of  committeemen  in  many  in- 


im  ! 


326     METHODS  OF  DEPARTMENT  OF  EDUCATION 

stances  seem  to  be  uncontrolled  by  general  accounts  kept 
in  the  Bureau  of  Audit. 

(3)  Although  the  Board  of  Education  as  a  corporation  is 
by  the  charter  made  the  highest  authority  and  given  control 
over  all  the  properties  and  affairs  of  the  public  schools, 
including  the  appointment  of  a  superintendent  of  school 
buildings,  a  superintendent  of  school  suppHes,  a  city  super- 
intendent of  schools,  a  supervisor  of  lectures  and  one  or 
more  auditors,  and  the  several  departments  or  bureaus  of 
administration  are  by  law  made  subordinate  to  the  board, 
these  bureaus  and  departments  have  been  operated  and 
controlled  by  the  several  superintendents  or  heads  in  large 
measure  as  if  they  were  independent  of  the  supreme  con- 
trol of  the  board,  and  as  if  they  were  not  mterdependent 
in  obtaining  educational  and  administrative  results. 

(4)  Proceeding  on  these  lines  departmental  or  bureau- 
cratic methods  have  developed  without  central  control  by 
the  board  and  without  intelligent  control  by  the  general  gov- 
ernment, each  superintendent  of  bureaus  or  each  committee 
following  its  own  designs,  as  a  result  of  which  the  statisti- 
cal forms  and  records  have  little  unity  or  consistency  of 
purpose;  there  seems  to  have  been  no  common  basis  for 
classification,  and  the  data  obtained  by  the  one  department 
or  the  other  in  many  mstances  could  not  be  utilized  to  ad- 
vantage either  as  a  basis  for  intelligent  control  by  the  board, 
or  for  accurate  and  comprehensive  report  to  the  public! 
(5)  The  reports  made  by  the  several  branches  of  the 
service  to  the  board,  and  by  the  board  to  the  public,  are 
madequate  and  do  not  present  information  in  a  form  to 
permit  the  board  to  exercise  discretion  in  its  acts  or  for 
the  public  to  properly  estimate  and  appreciate  the  char- 
acter of  service  performed  by  a  department  of  government 
upon  whose  eflaciency  and  economy  depends  the  future 
welfare  of  the  community. 


CHAPTER  XIX 

Administrative  Need  for  Accuracy  and  Uniformity 
IN  THE  Accounts  and  Reports  of  Hospitals' 

The  underlying  thought  in  the  subject  assigned  is 
not  new  to  the  medical  profession.  The  question  is 
whether  or  not  in  hospital  operation  physicians  should 
not  apply  the  same  methods  of  research,  and  have  before 
them  the  same  accurate  basis  for  judgment,  that  you  have 
in  operating  on  and  prescribing  for  your  patients.  Apply- 
ing to  the  problem  of  administration  the  nomenclature  of 
medical  science,  we  may  regard  the  hospital  as  having  its 
own  habitat,  its  anatomy,  its  physiology,  and  its  pathology. 
Anatomically  the  hospital  is  a  form  of  corporate  body 
that,  through  centuries  of  adaptation,  has  evolved  attri- 
butes as  common  in  kind  as  humanity  itself,  as  uniform 
as  the  functions  of  the  human  body  whose  physical 
The  hospital  Sufferings  the  hospital  is  designed  to  relieve. 
as  a  subject  The  functions  common  to  all  hospitals  are 
of  analysis  general  administration,  professional  service, 
ward  service,  dietary  service,  provisioning,  housekeeping, 
laundering,  and  the  general  care  and  maintenance  of 
buildings  and  hospital  equipment.  These  fimctions  and 
the  organic  parts  adapted  to  their  performance  being 
common,  all  activities  and  all  data  pertaining  to  them  may 
be  classified  and  summarized,  and  thus  reduced  to  a  com- 
mon basis  for  scientific  thought.    It  is  of  course  to  be  noted 

*  Read  before  the  Medical  Society  of  the  County  of  New  York,  Febru- 
ary a6,  1906. 

327 


I 


828       UNIFORMITY  IN  HOSPITAL  REPORTS 

that  many  special  characteristics  have  been  developed,  such 
as  dififerences  in  supervising  stafiF,  in  professional  staff,  in 
ward  organization,  m  dietary  arrangements,  the  addition  of 
free  dispensaries,  the  organization  of  out-patient  depart- 
ments, ambulance  service,  and  other  specialized  adjust- 
ments m  the  nature  of  adaptations  to  conditions  all 
these  must  be  reckoned  with  as  a  matter  of  institutional 
survival  or  corporate  growth. 

The  study  of  function  in   its  relation   to  corporate 
organism  is  the  physiology  of  our  subject;   the  exercise 
of  judgment  as  to  what  function  is  normal  and  what  is 
abnormal    the  diagnosis  of  institutional  condition,  the 
gmng  of  admmistrative  direction  and  the  exercise  of 
admmistrative  control  -  all  are  premised  on   the  ana- 
tomical and  the  physiological  study  of  the  hospital.    But 
this  IS  not  e        j^.    abnormaUty  of  function  must  be 
accounted  for  before  a  remedy  can  safely  be  prescribed. 
The  admmistrator  must  apply  the  method  of  scientific 
research  to  mstitutional  pathological  inquiry.    He  must 
be  able  promptly  to  get  at  the  organic  causes  of  mal- 
admmistration  and  mstitutional  inefficiency.     His  diag- 
^WW  K     '  ^^d/^^truments  of  precision  must  be 

Tltt  nf  ?  '"''  ''"  ^^''^''  '^'  ^^^^^y  ^«^es  from 
a  lack  of  admmistrative  stimuli  (symptomatized  by  inac- 
tion and  institutional  atrophy),  or  whether  it  is  trace- 

iik>r  ""^  ^^''''  ""'  '"^  '^°''  ^'^''  ^^^^  P^^^i^i^ 

^L'^'^T  ''  l^'^l  °^  '^^*  knowledge  coUected,  clas- 
sified, and  coordinated  with  reference  to  problems  arising 

Definition  of  a  ^  .  ^"^^  Common  subject  of  human  in- 
Kience  ^^iry.    As  a  medical  science  could  not  be 

nl,.  •  1  ^^v^loped  by  the  study  of  the  anatomy,  the 

phy^o  ogy  and  the  pathology  of  a  single  individual,  so 
admmistrative  knowledge  would  be   smaU,  to    say  the 


UNIFORMITY  IN  HOSPITAL  REPORTS 


329 


least,  if  limited  to  inquiry  with  respect  to  a  single  insti- 
tution. Neither  can  a  science  be  developed  by  the  research 
of  a  single  investigator.  There  must  be  coUaboration  be- 
tween many,  and  as  a  basis  for  collaboration  there  must 
be  a  common  method  of  research,  a  common  classifica- 
tion, a  common  basis  for  coordination  of  results  obtained 
in  order  that  each  mvestigator  may  contribute  something 
to  the  sum  total  of  exact  knowledge  with  respect  to  a  sub- 
ject of  common  interest.  Hospital  organization  and  ad- 
ministration has  come  to  be  a  prominent  subject  of  inquiry. 
Hospital  organization  and  administration  must,  therefore^ 
become  a  specialized  science,  the  making  of  which  is  de- 
pendent on  the  combined  mtelligence  and  experience  of 
aU  those  who  are  engaged  in  this  branch  of  business 
activity.  This  end  must  be  reached  before  we  can  estab- 
lish such  a  basis  for  direction  and  control  as  will  meet  the 
requirements  of  men  of  professional  training. 

Viewing  the  hospital  as  one  of  the  necessities  of  modem 
life,  and  the  problems  of  organization  and  administration 
as  a  proper  subject  for  inquiry,  the  practical  question  is 
this:  How  may  we  go  about  it  to  put  the  art  of  hospital 
operation  on  a  scientific  ba^is?  As  a  matter  of  practice, 
how  has  medical  science,  geological  science,  physics,' 
chemistry,  botany,  linguistics,  engineering,  architecture^ 
law  been  reduced  to  a  plane  of  exact  thinking?  We 
The  scientific  have  our  colleges  of  medicine,  our  urn- 
study  of  hos-  versity  departments  of  geology,  of  physics, 
of  chemistry,  of  languages,  our  schools  of 
engineering,  architecture,  and  law.  In  these  the  essential 
feature  has  been  the  association  of  workers  who,  by  use 
of  a  common  method  of  research,  have  cooperated  for 
scientific  results.  That  we  may  have  the  practical  ques- 
tion squarely  before  us,  let  us  assume  that  there  were 
organized  a  commission  or  a  bureau  of  hospital  research. 


!  il 


830       UNIFORMITY  IN  HOSPITAL  REPORTS 

With  such  a  group  of  mvestigators  collaborating  under 
competent  direction  what  might  be  accomplished  ? 

One  of  the  first  questions  of  hospital  organization  re- 
lates to  hospital  needs.  The  hospital  is  the  institutional 
instrument  organized  for  the  purpose  of  providing  the 
conditions  best  suited  to  success  in  surgical  operation 
and  medical  prescription.  As  surgery  and  medicine  have 
become  highly  specialized,  so  also  has  hospital  service. 
The  need  for  hospitals  is  the  need  for  institutional  facilities 
for  the  application  of  specialized  remedial  aid  to  the  sick 
and  the  injured.  By  himianitarian  impulse  some  one  is 
,^  ^        ^      moved  to  give.    Some  one  desires  to  con- 

What  may  be  " 

done  by  the  tribute  a  fimd  for  the  reUef  of  the  sick  poor, 
scientific  study  Shall  it  be  in  aid  of  the  medical  and  surgical 
of  hospitals  specialty  of  tuberculosis,  obstetrics,  ruptured 
and  crippled,  abdominal  surgery,  eye,  ear,  and  throat, 
gynaecology,  insanity,  contagious  diseases,  or  what?  The 
intelligent  determination  of  hospital  needs  must  depend  on 
scientific  research. 

Having  determined  that  the  institution  shall  take  the 
form  of  a  tuberculosis  hospital,  the  next  question  is  as 
to  location  and  physical  equipment.  Generally  speak- 
ing, the  question  of  location  is  one  which  has  reference 
to  the  convenience  of  the  community  to  be  cared  for  or 
to  the  natural  conditions  favorable  to  the  remedial  treat- 
ment to  be  administered.  An  institution  for  obstetrical 
practice  should  be  placed  in  or  near  a  crowded  quarter 
which  is  not  already  so  supplied.  A  hospital  for  contagion 
should  be  isolated  yet  within  easy  reach  of  the  city.  A 
tuberculosis  hospital  should  be  so  located  as  to  secure  the 
conditions  most  favorable  to  physical  invigoration  and 
successful  combat  with  localized  infection.  The  inter- 
ests of  medical  and  surgical  science  would  suggest  that 
benevolence   and   pubUc   expenditure  should   have  the 


UNIFORMITY  IN  HOSPITAL  REPORTS       3S1 

guidance  of  some  association  or  authority  competent  to 
advise. 

Even  more  urgent  is  the  need  for  research  and  well- 
digested  records  pertaining  to  matters  of  hospital  housing 
and  equipment.  The  highly  specialized  uses  to  which 
the  hospital  is  to  be  put  require  a  highly  specialized  archi- 
tecture. Assimiing  that  a  bureau  of  hospital  research 
were  estabUshed,  there  could  gradually  be  brought  to- 
gether such  architectural  experience  as  would  add  per- 
manently to  the  social  efficiency  of  bequests  and  as  to 
the  working  efiiciency  of  institutions  established  on  private 
or  pubUc  foundations. 

Before  the  informative  basis  for  hospital  organization 
is  complete,  data  pertaining  to  location  and  physical 
equipment  must  be  supplemented  by  exact  knowledge 
with  respect  to  hospital  service.  How  should  a  corpora- 
tion be  organized  to  obtain  the  best  corporate  results? 
What  should  be  the  corporate  powers  granted?  How 
should  these  corporate  powers  be  exercised  ?  What  powers 
should  be  given  to  the  board  ?  How  large  a  board  should 
be  provided?  How  should  it  be  chosen?  Should  it  be  a 
continuous  or  a  terminating  body?  What  should  be  the 
individual  and  collective  responsibility  of  its  members? 
What  powers  should  be  given  to  officers?  How  should  the 
official  staff  be  organized  ?  What  should  be  their  account- 
abiUty  and  responsibility?  WTiat  should  be  the  depart- 
mental organization?  What  should  be  the  system  of 
administrative  control?  How  shall  the  professional  staff 
be  provided  for,  and  should  the  hospital  be  monopolized 
by  the  staff,  or  should  it  be  operated  as  an  institution  open 
to  the  whole  profession  for  the  care  of  patients  imder 
treatment  ? 

These  are  fundamental  questions.  Assuming  that  a 
Carnegie  or  a  Rockefeller,  a  Morgan  or  a  Phipps,  were  to 


I 


It 


88«       UNIFORMrrY  IN  HOSPITAL  REPORTS 

consider  the  endowment  of  a  hospital,  to  whom  would 
he  turn  for  scientific  information  as  a  basis  for  judgment  ? 
Can  any  smgle  institution,  association,  or  person  act 
wisely  on  such  matters,  unless  some  method  is  devised 
for  collecting,  classifying,  coordinating,  and  reporting  the 
experience  of  hospitals  with  respect  to  questions  of  hos- 
pital needs,  hospital  location,  hospital  architecture  and 
equipment,  hospital  incorporation,  and  the  organization 
of  hospital  service. 

It  will  be  seen  that  in  all  these  relations  hospital  facts 
bear  a  close  resemblance  to  what  may  be  called  anatomy 
and  habitat.    We  now  come  to  the  physiological  side  of 
the  subject.    This  presumes  a  study  of  functional  activity. 
Having  analyzed  and  classified  the  several  methods  of 
organizing  the  general  administration,  the  ward  service, 
the  ambulance   service,  the  dispensary,  the  out-patient 
department,  the  dietary  and   kitchen,  the  laundry,  the 
What  may  be     housekeeping,  the  service  for  maintenance 
done  by  the       of  property,  etc.,  questions  of  administra- 
orhJ'^i'ti^^?   tion  centre  in  the  operation  of  these  several 
ministeation*  "   branches  or  departments.    Operative  results 
maybe  reflected  in  the  statistics  and  accounts. 
But  before  any  intelligent  opinion  can  be  formed,  or  any 
conclusions  drawn,  there  must  be  a  common  method 
employed  for  the  collection  of  data,  a  common  basis  for 
classification  of  informatibn  adopted,  a  similar  coordina- 
tion of  the  classified  facts,  and  a  form  of  report  which  will 
enable  those  reading  the  results  arrived  at,  to  come  to  a 
conunon  imderstanding. 

As  a  means  of  obtaining  such  results,  a  bureau  of  hos- 
pital research  would  be  an  invaluable,  we  may  say  an 
indispensable,  aid.  Without  some  agency  through  which 
scientific  cooperation  can  be  maintained,  each  institution 
and  each  investigator  is  working  independently,  and  hos- 


UNIFORMITY  IN  HOSPITAL  REPORTS       333 

pital  research  can  never  rise  to  the  plane  of  a  science. 
Whatever  be  the  agency  --  whether  the  work  be  carried 
on  by  an  independent  bureau,  a  joint  commission,  a  hos- 
pital Saturday  and  Sunday  association,  or  by  frequent 
conferences  among  hospital  superintendents  and  account- 
ants—certam  it  is  that  the  operative  side  of  hospital 
work  can  never  be  reduced  to  an  exact  science  nor  a  sound 
foundation  ever  laid  for  administrative  judgment  till  some 
provision  is  made  for  cooperation. 

Let  us  assume  that  through  some  central  agency  a  bureau 
of  hospital  research  or  a  permanent  joint  commission,  the 
habitat,  the  anatomy,  and  the  physiolog>'  of  each  institu- 
tion becomes  known;  more  than  this,  let 
us  assume  that  through  methods  of  scientific 
research  a  compendium  of  hospital  facts 
were  available  from  which  might  be  drawn 
conclusions  capable  of  serving  as  funda- 
mental principles  for  the  guidance  of  administrators. 

The  advantage  of  such  information  and  such  guidance 
to  the  individual  is  evident.  Is  the  coal  expenditure  of 
a  particular  institution  so  large  as  to  become  a  symptom 
of  institutional  irregularity?  This  at  once  calls  for  a 
diagnosis.  Other  sjTnptoms  are  looked  for.  Is  all  of  the 
coal  received  that  is  paid  for?  Is  the  firing  economically 
done?  Is  the  type  of  furnace  one  that  transmits  the  heat, 
or  is  the  fuel  wasted  through  defective  or  ill-constructed 
flues?  Is  the  transmitting  apparatus  of  a  kind  such  as 
will  give  the  best  heating  result  ?  Are  the  pipes  well  jack- 
eted? Let  us  suppose  that  all  these  are  answered  in  the 
afl&rmative;  what  next?  Is  the  ventilating  apparatus 
such  as  to  carry  off  the  heat  before  it  has  been  effectively 
used?  Do  the  windows  and  doors  close  tightly.  Yes? 
The  diagnosis  is  not  yet  complete.  Is  the  institution  ex- 
posed to  cold  winds?  After  careful  diagnosis  this  is  noted 


The  advantages 
of  a  hospital 
science  to  the 
individual  in- 
stitution 


I 


Ml 


334       UNIFORMITY  IN  HOSPITAL  REPORTS 

as  a  fact.  The  remedy  is  indicated.  The  superintendent 
prescribes  revolving  winter  doors  and  double  glazed  win- 
dows. The  prescription  is  filled  at  a  capital  cost  of,  say, 
five  hundred  dollars,  and  the  expense  of  the  institution 
reduced  one  hundred  dollars  per  year.  By  such  a  thorough- 
going investigation  inspired  by  an  indicated  and  seeming 
abnormality  of  function  the  superintendent  is  enabled  to 
locate  an  institutional  disease  anywhere  along  the  whole 
line  which  without  standards  for  judgments  would  not 
have  been  discovered. 

By  application  to  well-established  standards  of  efiQciency 
and  normality  in  medical  and  surgical  practice,  the  super- 
intendent (for  example)  discovers  a  symptom  of  institu- 
tional disease  in  the  alcohol  bill.  Inquiry  as  to  this 
locates  the  cause  in  the  use  of  ninety-five  per  cent  alcohol 
for  rubbing  backs.  Another  symptom  of  economic  weak- 
ness is  found  in  the  gauze  supply.  Admmistrative  diag- 
nosis discovers  that  the  surgeons  and  physicians  are  care- 
ful, but  that  antiseptic  gauze  is  used  by  the  nurses  in 
cases  or  at  times  when  unsterilized  mudin  bandages  or 
towels  would  serve  as  well.  The  expense  for  supplying 
food  seems  abnormal;  this  may  be  traced  to  a  lack  of 
responsibility  for  supplies,  permitting  petty  thievery  by 
servants,  to  the  wasteful  use  of  stufiFs,  to  the  serving  of 
high-priced  viands  to  the  house  servants,  to  the  purchase 
of  provisions  out  of  season  when  seasonable  ones  would 
have  the  same  dietic  value,  to  one  or  more  of  a  himdred 
other  causes.  In  every  part  of  the  institution  the  manage- 
ment is  improved,  and  economies  may  be  pointed  out  by 
having  some  basis  for  judgment  that  will  indicate  a  patho- 
logical condition. 

Above  all,  the  administration  of  an  individual  hospital 
depends  on  the  system  of  control  through  the  accounts. 
In  this  hospitals  are  woefully  defective.    Like  the  life 


UNIFORMITY  IN  HOSPITAL  REPORTS       335 

insurance  and  other  trustee  institutions  they  have  failed 
to  appreciate  the  meaning  of  administrative  control,  and 
What  may  be  the  duty  of  hospital  boards  to  introduce 
done  by  the  such  Systems  of  account  which  will  give  it. 
Ir^ff^tive  ""^  ^y  ^^y  ^^  assembling  and  transmitting  the 
system  of  ac-  method  and  means  of  collecting  and  clas- 
counting  con-  sifying  the  financial  data,  and  coordinating 
^^  these  data  aroimd  problems  of  administra- 

tion, a  central  bureau  of  hospital  research  can  do  much 
to  raise  the  standard  of  efficiency.  Such  an  agency  would 
prove  especially  effective  in  establishing  a  form  or  basis 
for  reporting  which  would  give  to  the  public  and  to  bene- 
factors an  intelligent  account  of  hospital  trusteeship. 


1 

I 


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CHAPTER  XX 

Eleemosynary  Institutions  and  Accountancy  * 

The  members  of  this  conference  may  not  be  accustomed 
to  thinking  of  philanthropy  in  terms  of  accountancy. 
Dealing  with  human  factors,  you  have  perhaps  found 
little  or  no  interest  in  figures.  Nevertheless,  for  an  apostle 
of  finance  it  may  not  be  considered  inapproi)riate  to  say 
that  your  sums,  whether  they  have  to  do  with  human 
integers,  or  with  human  fractions,  must  be  finally  solved 
by  the  logic  of  the  counting  house.  Application  is  made 
to  the  office  of  philanthropy  for  relief;  you  at  once  send 
out  an  agent  to  take  off  an  individual  balance  sheet,  an 
individual  income-statement,  and  an  analysis  of  the  indi- 
vidual deficit-account.  Philanthropy  which  is  not  pre- 
ceded by  such  an  investigation  is  considered  as  worse 
than  wasted. 

The  records  from  which  your  data  are  drawn,  are  found 
in  the  faces,  the  hearts,  and  homes  of  social  dependents. 
The  symbols  read  and'  interpreted  by  you  are  hunger, 
pain,  and  disease  —  the  dwarf  child,  the  tear -worn  face 
of  the  mother,  the  hopeless  and  inebriate  father.  The 
quantitative  and  qualitative  emblems  interpreted  and 
summarized  by  philanthropy  differ  from  those  of  account- 
ancy; but  the  methods  employed  for  obtaining  results 
are  much  the  same.  The  professional  accountant  pro- 
ceeds from  the  point  of  view  of  the  administrative  prob- 

» Paper  read  before  the  National  Conference  on  Charities  and  Cor- 
rections, May,  1906. 

336 


ELEEMOSYNARY  INSTITUTIONS 


337 


lem  of  an  institution,  and  looks  toward  the  individual 
welfare  of  the  stockholders.  The  professional  philan- 
thropist proceeds  from  the  premise  of  the  social  problem, 
and  looks  towards  the  individual  welfare  of  the  component 
member  of  society.  In  each  case,  the  remedy  is  applied  to 
existing  conditions  only  after  a  careful  analysis  of  results  re- 
ported. Administrative  reform  looks  toward  increasmg 
industrial  eflaciency;  social  reform  must  have  in  mind  an 
increase  of  physical,  mental,  and  moral  force,  that  the  defi- 
cit in  the  individual  income  account  may  be  transformed 
into  an  earned  surplus  on  the  individual  balance  sheet. 

Accountancy  has  to  do  with  institutional  pathology. 
Philanthropy  has  to  do  with  social  pathology.  Having 
before  it  ideals  of  healthful  social  activity,  philanthropy 
appHes  concepts  of  normality  to  the  pathological  aspects 
of  social  life.  The  philanthropist,  as  philanthropist,  is 
not  interested  in  man  as  individual;  he  is  not  primarily 
concerned  with  individual  insanity  or  disease;  neither  does 
he  feel  that  duty  calls  him  to  a  consideration  of  the  moral 
pervert  as  such.  These  subjects  lie  within  the  profes- 
sional field  of  the  physician,  the  clergyman,  and  the  teacher. 
Those  who  devote  their  fives  to  philanthropy  regard  tem- 
porary incapacity  with  an  eye  to  the  restoration  of  the 
individual  to  normal  healthful  activity  in  a  society  cooper- 
ating for  common  well-being. 

But  aside  from  analogy  in  method  and  purpose,  phi- 
lanthropy and  accountancy  have  a  very  direct  relation  — 
in  fact  one  which  requires  direct  cooperation.  In  a  so- 
ciety like  our  own,  philanthropy  must  deal  through  insti- 
tutions, and  organically  takes  on  corporate  forms.  It  has 
estates  to  be  administrated,  and  corporate  functions  to 
be  exercised  and  controlled.  Administrative  control  is 
the  professional  field  of  accountancy.  The  ideals  of 
admmistration  by  which  it  is  guided  are,  fidelity,  economy, 
23 


338 


ELEEMOSYNARY  INSTITUTIONS 


and  efficiency;  it  holds  itself  out  as  a  professional  adviser, 
willing  and  able  to  prescribe  the  methods  by  which  ad- 
mmistrative  control  is  to  be  attained  and  exercised,  in 
order  that  these  institutional  ideals  may  be  realized.  It 
is  this,  the  institutional  aspect  of  philanthropy,  to  which 
this  paper  is  especially  addressed. 

PHILANTHROPY  AND  CORPORATE  TRUSTEESHIP 

The  suitableness  of  corporate  organization  for  philan- 
thropic work  is  readily  perceived  from  the  briefest 
statement  of  its  characteristics.  A  corporation  is  a  legal 
person  empowered  to  receive  and  hold  property  for  its 
beneficiaries,  but  with  no  power  to  use  or  dispose  of  the 
same,  except  through  duly  appointed  agents  or  trustees; 
through  these,  all  corporate  activities  must  be  carried  on. 
Corporate  activities,  therefore,  are  premised  on  personal 
fidelity;  and  corporate  estates  are  protected  by  rules  of 
law,  which  hold  these  trustees  to  a  strict  account. 

The  beneficiaries  of  a  commercial  joint  stock  corpora- 
tion are  persons  (or  their  assigns)  who  have  directly 
contributed  to  its  capital,  in  exchange  for  shares.  In 
order  that  one  or  more  of  the  shareholders  may  not 
receive  an  inequitable  share  of  the  benefits  of  corporate 
association,  no  one  is  permitted  to  control  its  property  or 
its  policy,  or  to  distribute  its  profits,  except  those  dele- 
gated to  act  in  a  representative  trust  capacity  for  all 
concerned.  A  further  protection  is  found  in  the  legal 
provision  that  no  business  may  be  transacted  except  by 
an  entirely  different  set  of  trustees,  known  as  officers.  As 
has  been  before  pointed  out,  there  are,  in  such  a  cor- 
poration, three  forms  of  institutional  control  to  be  exer- 
cised: (i)  Proprietary  control,  exercised  by  stockholders 
through  the  choice  of  a  Board  of  Trustees.  (2)  Board 
control,  to  be  exercised  through  the  appomtment  of  officers 


ELEEMOSYNARY  INSTITUTIONS 


839 


and  through  the  making  of  rules  prescribing  their  duties 
and  limiting  their  powers.  (3)  Administrative  control, 
to  be  exercised  by  those  who  are  charged  with  the  details 
of  the  business  transacted  by  the  company. 

A  philanthropic  institution  differs  from  a  commercial 
or  joint  stock  company  chiefly  in  this:  that  the  element  of 
proprietary  control  is  wanting.  In  such  a  society  there 
are  no  stockholders,  and  therefore,  no  proprietors  to  whom 
the  trustees  are  required  to  report;  there  is  no  one  by 
whom  the  acts  of  the  trustees  are  to  be  reviewed  before 
new  representatives  are  elected.  Those  who  have  con- 
tributed property  or  funds  as  a  foundation  for  benevolent 
work,  usuaQy  relmquish  aU  beneficial  rights  in  the  estate, 
and  leave  the  management  to  a  self-perpetuatmg  Board 
of  Trustees.  Their  duty  is  to  direct  the  affairs  of  the 
society  and  control  its  officers  in  the  interest  of  a  class  of 
social  dependents,  for  whose  reUef  the  society  was  organ- 
ized. These  beneficiaries  have  no  claims  which  may  be 
enforced,  neither  have  donors  any  guarantee  that  the 
terms  of  their  gifts  and  bequests  will  be  complied  with, 
except  such  guarantee  as  is  found  in  the  integrity  and 
accountability  of  the  trustees. 

Without  a  body  of  proprietors  to  call  them  to  account, 
the  trustees  of  the  benevolent  society  have  a  much  greater 
responsibility  than  the  directors  of  a  commercial  joint 
stock  company.  To  add  to  the  sacredness  of  this  rela- 
tion, the  corporation  itself  is  made  a  trustee,  with  rights 
to  enforce  the  will  of  the  contributors  on  one  hand,  and 
with  a  duty  to  protect  the  beneficiary  mterests  on  the  other. 
By  such  a  trustee,  these  rights  and  duties  are  enforceable 
in  courts  of  law,  but  their  enforcement  depends  on  ac- 
counts and  reports  which  will  give  to  officers  and  dkec- 
tors,  as  well  as  to  donors  and  beneficiaries,  an  intelligent 
view  of  administrative  results. 


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S40  ELEEMOSYNARY  INSTITUTIONS 


THE  VIEW  OF  THE  PAST 

In  the  past,  corporate  trusteeship  has  been  too  lightly 
regarded.  It  has  been  customary  for  religious  and  phil- 
anthropic enthusiasts  (as  well  as  for  designing  promoters) 
to  seek  out  men  of  reputation  for  stool  pigeons  to  sit  on 
corporate  boards.  This  has  been  done  to  attract  the 
attention  of  the  benevolent  public,*  and  to  ins])ire  confi- 
dence while  solicitmg  contributions.  When  asking  persons 
of  prominence  to  accept  such  positions  a  definite  pledge 
is  frequently  given  that  no  demands  will  be  made  on  their 
time  in  attending  to  the  affairs  of  the  society.  It  has  not 
been  uncommon  for  a  single  person  to  hold  places  on 
many  of  such  boards,  at  the  same  time  giving  practically 
no  thought  to  the  business  of  any  of  them.  This  is  little 
short  of  dishonesty.  The  control  of  such  a  society  is 
usually  dependent  entirely  on  the  personal  attention  of 
its  trustees.  Relying  on  the  sense  of  duty  which  should 
reside  in  trusteeship,  donors  contribute  to  an  estate  in 
which  they  retain  no  controlling  right  or  interest;  and 
these  sacred  obligations  have  been  accepted  by  persons 
knowing  that  all  general  powers  of  direction  and  control 
are  in  their  hands. 

Quite  as  remiss  is  the  man  who  accepts  a  position  on  a 
Board  of  Philanthropy  as  an  honorarium  —  or  in  order 
that  he  may  occasionally  spend  a  pleasant  hour,  and  have 
his  name  associated  with  persons  who  have  attained 
honor  and  distinction  in  literature,  business,  or  public 
life.  These  motives  do  not  comprehend  the  first  thought 
of  respect  for  duty  and  personal  integrity;  nor  do  they 
admit  of  a  more  favorable  interpretation  than  the  act  of 
one  who,  being  unmindful  of  his  trust,  permits  his  own 
servants  to  waste  the  estate  of  another  that  has  been  left 
in  his  care  and  keeping. 


ELEEMOSYNARY  INSTITUTIONS 


341 


Another  type  of  corporate  infidel  is  found  in  the  officer 
who,  being  in  executive  position,  uncontrolled  by  his 
board,  —  or  what  is  still  worse,  supported  by  a  self-per- 
petuating board  of  his  own  choice,  —  comes  to  regard  him- 
self as  a  proprietor  and  chief  beneficiary  of  a  philanthropy 
that  looks  to  the  public  for  support.  This  type  is  still 
found  in  certain  educational,  reformatory,  and  charitable 
corporations.  Such  an  officer  spends  hours  trying  to 
educate  the  public  not  to  give  to  individual  beggars,  but 
considers  himself  licensed  to  beg  without  feeling  under 
any  obligation  to  take  the  pubhc  into  his  confidence,  or 
even  to  render  an  intelligent  account  of  his  stewardship. 
In  response  to  demands  for  information,  he  will  answer 
that  the  trustees  have  no  interest  in  details,  and  that  the 
public  is  not  entitled  to  knowledge  with  respect  to  the 
inner  workings  of  his  organization. 

A  NEW  roEA  AS  TO  CORPORATE  RESPONSIBILITY 

The  public  demand  for  more  light  on  matters  of  trust 
is  not  limited  to  life  insurance.  This  craving  for  facts 
pertaining  to  institutions  is  a  manifestation  of  a  general 
awakening  which  requires  that  those  holding  positions 
of  trust  (whether  they  be  officers  of  government,  or  of 
transportation  and  investment  companies,  or  members 
of  boards  and  officers  of  benevolent  associations)  shall 
be  held  to  public  account.  There  is  a  disposition  to 
ferret  out  the  moral  pervert  and  the  institutional  parasite, 
whatever  be  his  station  m  fife.  Especially  is  this  true  in 
connection  with  institutions  organized  in  the  interest  of 
public  welfare.  The  demand  of  the  time  for  personal 
fidelity,  for  economy  of  human  effort,  and  for  institutional 
efficiency,  applies  to  the  millionaire  as  well  as  to  the 
pauper.  And  these  are  qualities  which  require  an  intelli- 
gent basis  for  the  exercise  of  judgment  on  the  part  of 


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ELEEMOSYNARY  INSTITUTIONS 


those  in  possession  of  controlling  responsibility,  whether 
this  judgment  be  that  of  citizen,  of  stockholder,  of  volun- 
tary contributor,  or  of  the  trustees  and  officers  of  institu- 
tions supported  by  taxpayers,  stockholders,  and  voluntary 
contributors. 

This  new  demand  comes  not  from  a  diminishing  stand- 
ard of  individual  honesty,  as  has  sometimes  been  urged, 
nor  by  reason  of  a  decreasing  sense  of  personal  honor. 
It  comes  from  the  higher  ideals  of  social  duty;  from  the 
constantly  increasing  personal  responsibiUties  incident  to 
broader  institutional  life.  In  a  society  so  complicated  in  its 
fabric  as  our  own,  so  comprehensive  in  scope  (industrially, 
financially,  and  politically) ,  there  is  an  ever  increasing  need 
for  control  —  in  order  that  those  who  work  with  fidelity 
for  common  ends  may  be  protected;  in  order  that  econ- 
omy in  group  activity  may  be  conserved;  in  order  that 
personal  efficiency  may  be  rewarded  and  that  such  as 
are  inefficient  may  be  marked  for  replacement  by  those 
who  are  able  to  contribute  their  share  to  cooperative  pro- 
duction; in  order  that  there  may  be  a  proper  regard  for 
the  larger  duties  and  responsibilities  on  which  institutional 
growth  and  general  welfare  depend. 

In  a  philanthropic  institution,  such  an  ideal  requires 
that  the  employee  shall  be  under  the  administrating  con- 
trol of  the  officer;  that  the  officer  shall  not  only  keep  a 
complete  and  accurate  account  of  the  administrative 
activities  for  which  he  is  responsible,  but  that  he  shall 
also  render  an  intelligible  report  of  the  same  to  the  trustees; 
that  the  report  as  rendered  shall  not  only  speak  in  terms 
of  details  as  to  funds  received  and  funds  disbursed,  but 
also  shall  give  an  accurate  measure  of  the  full  range  of 
institutional  achievements.  It  requires  that  the  admin- 
istrative data  should  be  regularly  and  currently  collected 
through  departmental  accounts,  and  reported  in  such 


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ELEEMOSYNARY  INSTITUTIONS 


343 


manner  as  to  inform  the  board  with  respect  to  the  economy 
and  efficiency  of  fimctions  performed.  Going  a  step 
further,  this  new  idea  as  to  responsibility  requires  that 
the  board  shall  not  only  assume  responsibility  for  the  gen- 
eral direction  of  the  society's  affairs,  but  also  make  a 
full  report  of  its  activities  and  finances  both  to  contributors 
and  to  the  public  for  whose  benefit  the  institution  is  main- 
tained. 

THE  RACE  IDEAL  OF  ACCOUNTABILITY  AND  CONTROL 

Intelligent  institutional  control  presumes  administra- 
tive knowledge  of  the  minutest  details  ;  it  presumes  that 
all  judgment  and  directive  action  proceeds  from  such 
knowledge.  Our  highest  ideal  of  administrative  account 
and  personal  responsibiHty  is  not  the  dream  of  a  prudist, 
nor  the  dogma  of  the  reformer;  it  is  found  in  the  moral 
and  reUgious  culture  which  dominates  the  race.  As  man 
has  looked  out  on  a  universe  of  countless  worlds,  he  has 
contemplated  the  spheres  as  they  swing  through  mil- 
lenniums of  time  and  an  infinity  of  space  —  driven  on- 
ward by  immeasurable  force,  yet  each  controlled  by  other 
forces  which  bend  their  paths  and  shape  their  courses  in 
such  manner  that  planets,  suns,  and  satellites  move  on  in 
perfect  order.  Considering  this  magnitude,  the  com- 
plexity of  substance,  of  force,  of  form  (a  cosmos  so  great 
that  it  may  not  be  comprehended  or  probed  by  instru- 
ments of  sight),  all  moving  under  such  complete  control 
that  our  astronomers  may  calculate  the  tides,  the  ecHpses, 
and  other  cosmic  phenomena  with  certainty  for  centuries  to 
come,  we  have  the  best  race  concept  of  control  that  is 
possible  for  the  human  mind  to  grasp. 

Following  the  tenets  of  religious  belief  this  control  is 
held  to  be  a  personal  one  —  our  religion  centres  on  per- 
sonal responsibility  of  the  creature  (the  servant),  to  the 


I  I 


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ELEEMOSYNARY  INSTITUTIONS 


Creator  (the  master).  The  power  which  impels  is  con- 
ceived as  Almighty;  the  hand  which  controls  without 
mischance  —  this,  the  race  regards  as  Omnipotent.  But 
with  the  concept  Omnipotent  our  notion  of  cosmic  ad- 
ministration is  not  complete.  The  hand  which  shapes 
and  determines  the  destinies  of  the  universe  is  conceived 
to  be  guided  by  an  Intelligence  as  great  as  it  is  powerful. 
We  call  this  inteUigence  Omniscience.  Omnipotence! 
Omniscience  I  One  element  is  still  lacking.  Personal  re- 
sponsibility of  every  creature  to  a  common  Creator  t  These 
are  the  elements  essential  to  the  race  ideal  of  control  and 
responsibility. 

Whatever  may  be  our  religious  faith,  this  race  concept 
has  in  it  a  very  direct  bearing  on  the  social  problem 
before  us  — the  great  problem  of  institutional  adminis- 
tration. Human  association  and  institutional  hfe,  broad- 
enmg,  widening,  becoming  more  complex,  is  gradually 
commg  to  comprehend  a  wider  range  of  facts.  In  some 
of  our  cooperating  groups  we  have  aheady  spanned  the 
earth.  Individual  intelligence,  however,  is  lunited  to  the 
senses.  To  know,  we  must  taste,  touch,  smell,  hear,  or 
see.  Our  mtelligence  in  institutional  control  must  come 
through  these  senses.  The  possibility  of  individual  direc- 
tion must  depend  on  the  person  in  command  being  able 
to  bring  the  acts  of  all  persons  cooperating  within  the 
range  of  his  faculties  of  perception  and  of  reason.  Under 
primitive  conditions  this  was  simple  — it  required  no 
organization  other  than  that  provided  by  nature  itself. 
The  one  in  control  was  able  to  hear  or  see  each  employee 
and  keep  in  personal  touch  with  his  every  act.  No  inter- 
mediate controlling  device  was  necessary  unless  it  be  to 
aid  the  memory  and  to  lay  the  foundation  for  better 
judgment  as  comprehended  within  the  wider  range  of  ex- 
perience.    But  under  modem  organic  conditions  original 


ELEEMOSYNARY  INSTITUTIONS 


345 


perception  must  come  through  others.  Its  certainty  must 
depend  on  some  intermediate  accoimting  device  which 
will  accurately  record  the  acts  of  every  person  and  give 
such  logical  summary  of  results  as  will  place  before  the 
administrator  a  digest  of  experience  which  may  be  used 
as  premises  for  highest  administrative  reason  and  the  best 
directive  control.  This  fact  the  philanthropist  has  not  yet 
fully  perceived.  He  receives  millions  in  funds;  he  accepts 
responsibility  for  the  management  of  large  estates;  the 
manager  of  these  funds  and  estates  may  be  responsible 
for  many  agencies  and  branches  which  are  supported  by 
trust  income.  In  many  instances,  without  feeling  it  in- 
cumbent on  him  to  adopt  methods  which  will  enable  him 
to  discharge  his  duties  with  highest  honor  or  to  extend 
relief  to  the  maximum  number  within  the  class  whom  the 
philanthropy  administered  by  him  is  intended  to  reach. 
He  has  not  yet  come  to  appreciate  the  truth  that  busi- 
ness principles  should  be  applied  to  the  business  side  of 
the  trust  in  his  hands. 


\l 


CHAPTER  XXI 

An  Agency  of  Citizen  Inquiry  —  The  Bureau 
OF  Municipal  Research^ 

One  hundred  and  thirty  years  ago  the  people  of  this 
republic  took  upon  themselves  the  task  of  self-govern- 
ment; they  incorporated  themselves  for  purposes  of 
public  business.  In  this  act  of  incorporation  they  de- 
cided what  agents  they  would  employ  and  assumed  the 
right  to  select  their  own  trustees;  they  executed  to  their 
business  agents  limited  deeds  of  trust,  and  made  these 
deeds  of  trust  (their  charters  of  government)  revokable 
^  at  will.  That  the  acts  of  their  trustees  might  be  subject 
to  frequent  review,  they  limited  their  tenure  and  made 
A  bit  of  ample  provisions  for  direction  and  control. 

Franklin  One  of  the  first  coins  struck  by  these  re- 

phuosophy  organized  states  was  designed  by  that  great 
publicist  and  revolutionary  philosopher,  Benjamin  Frank- 
lin. On  its  face  was  portrayed  a  dial  and  the  rising  sun 
—  emblematic  of  the  dawn  of  a  new  political  era  full  of 
hope  and  promise.  The  reverse  side  had  for  its  margin 
a  chain  of  thirteen  links,  suggesting  need  for  co5peration 
and  combination  for  common  ends.  Within  this  broad 
border  was  the  motto:  "Mind  Your  Own  Business."  As 
citizens  your  business  is  public  business.  Have  you  been 
mindful  of  it? 
In  your  city  is  a  great  water-producing  enterprise.    It 

*  Memorandum    for    address    before    the    Real    Estate    Board    of 
Brokers,  New  York,  February  17,  1909. 

346 


.,  i 


AN  AGENCY  OF  CITIZEN  INQUIRY 


347 


The  citizen's 
business 


collects  from  hundreds  of  square  miles  of  territory,  and 
distributes  to  millions  of  people.  From  the  operation  of 
this  plant  millions  of  revenues  accrue  each  year.  In 
this  plant  many  times  more  millions  are  invested.  You, 
as  citizens,  pay  this  water  revenue.  You,  as  citizens,  have 
furnished  this  capital.  The  purpose  of  all  this  is  to 
maintain  a  public  enterprise  which  will  produce  the  best, 
the  purest  water  at  the  lowest  possible  cost.  This  is 
your  business.    Are  you  minding  your  business  ? 

Around  this  city  are  miles  of  water  front.  These 
belong  to  a  corporation  of  which  you  are  a  member. 
Reaching  out  to  river  and  ocean  traffic  are  docks  and 
piers.  You  furnished  the  capital  with 
which  these  docks  and  piers  were  built. 
The  management  of  these  properties,  the 
leases  entered  into,  their  operation  and  maintenance, 
has  been  placed  in  the  hands  of  your  trustees.  Do  you 
even  know  whether  these  trustees  have  had  ordinary 
facilities  for  doing  business?  Do  you  mind  your  own 
business? 

The  several  boroughs  of  the  city  are  widely  separated 
by  arms  of  the  sea,  to  span  which  bridges  have  been 
built,  tunnels  constructed,  and  ferries  operated.  Many 
of  these  are  municipal  bridges,  tunnels,  and  ferries.  They 
were  built  at  high  cost.  The  bridges  are  operated  and 
maintained  at  an  annual  expense  of,  approximately, 
$1,500,000;  the  ferries  are  operated  and  maintained  at  an 
annual  cost  of  approximately  $2,100,000;  nearly  $900,000 
in  excess  of  revenues.  This  is  your  business.  What 
are  you  doing  to  mind  your  own  business? 

To  house  your  schoob,  your  hospitals,  your  social 
dependents,  your  courts,  your  police,  your  firemen,  your 
workmen,  your  public  business  offices,  between  one  and 
two  thousand  buildings  are  required;  these  must  be  ade- 


II 

I 


348  AN  AGENCY  OF  CITIZEN  INQUIRY 

quately  maintained.  To  provide  the  service  necessary  to 
the  welfare  of  a  great  population  some  sixty  thousand 
employees  are  retained;  these  must  be  paid.  To  make 
Incidents  of  this  service  effective  a  variety  of  equipment 
corporate  must  be  provided  at  high  cost  to  the  com- 

trusteeship  munity;  this  must  be  repaired  and  replaced. 
Municipal  stables  caring  for  thousands  of  horses;  munici- 
pal repair  shops  employing  thousands  of  men;  municipal 
storehouses  containing  millions  in  supplies;  annual  ex- 
penses over  one  hundred  and  fifty  million  dollars;  annual 
receipts  and  disbursements  of  nearly  five  hundred  millions; 
a  gross  debt  that  is  close  to  a  thousand  million;  —  these 
are  some  of  the  incidents  of  corporate  trusteeship  which 
call  upon  you  as  citizens  and  as  beneficiaries  of  public 
funds  to  "mind  your  own  husinessy 

For  years  you  have  been  guessing  at  your  city  debt. 
Two  years  past  the  legality  of  bond  issues  has  been 
in  question,  because  you  did  not  know  whether  the  limit 
Some  condi-  of  borrowing  power  had  been  reached.  By 
tions  which  reason  of  failure  to  record  contract  lia- 
iuggest  inquiry  ^iUties  mcoming  administrations  have  been 
saddled  with  the  debts  of  past  administrations;  appro- 
priations and  bond  funds  have  been  overenc umbered; 
authorizations  to  spend  have  been  forced;  the  Board  of 
Estimate  and  Apportionment  have  been  unable  to  exercise 
financial  control.  By  reason  of  lack  of  cost  data,  budgets 
have  been  guesses  and  control  over  economy  and  efl5- 
ciency  has  been  an  administrative  impossibility.  Is  it 
thought  by  you  that  the  conditions  which  have  prevailed 
in  our  public  affairs  are  in  a  measure  due  to  the  fact  that 
you  have  not  been  mindful  of  your  business?  Is  the 
reason  why  you  are  interested  in  hearing  something  about 
the  Bureau  of  Municipal  Research  that  you  have  felt 
that  some  organized  citizens'  agency  is  needed  to  provide 


AN  AGENCY  OF  CITIZEN  INQUIRY 


S49 


you  with  the  information  necessary  to  make  the  powers  of 
citizen  control  effective? 

A  STATEMENT  OF  PRINCIPLES 

If  asked  to  formulate  the  principles,  the  plans,  the 
work,  of  the  Bureau  in  a  single  phrase,  I  would  say  that 
the  single  motive  of  those  who  were  instrumental  in  its 
organization  and  its  maintenance  was  to  provide  an 
effective  agency  of  citizen  inquiry  —  to  make  the  infor- 
mation obtainai  concerning  the  great  business  in  which 
citizens  are  interested  available  for  intelligent  cooperation. 
The  principles  fundamental  to  the  work  of  the  Bureau 
are  the  principles  fundamental  to  Democracy,  viz:  — 
That  the  end  of  public  business  is  public  welfare. 
That  there  is  a  non-political  administrative  and  technical 
side  as  well  as  a  political  side  to  public  business. 

That  whatever  direct  part  the  people  may  play  in 
politics,  the  administration  of  public  business  must  be 
conducted  through  authorized  agents. 

That  a  public  administrative  officer  or  agent  is  a  public 
trustee. 

That  actions  to  enforce  fidelity,  economy,  and  efl&ciency  of 
public  trusts  depends  on  evidence. 

That  the  effective  use  of  evidence  in  the  enforcement  of 
public  trusts  depends  on  the  availability  of  this  evidence 
to  the  trust  beneficiary  —  the  people, 
,  The  fundamental  assumption  of  the  programme  of  the 
Bureau  is  an  organic  part  of  our  public  law,  namely,  that 
the  trust  beneficiary  (the  citizen)  may  at  all  times  freely 
inquire  into  the  accounts  of  his  trustee  (the  ofl&cer) ;  that 
this  is  an  essential  part  of  minding  his  own  business.  As 
an  organized  agency,  the  Bureau  relies  on  the  common 
law  and  statutory  right  of  access  to  public  records.  The 
questions  we  ask  are: 


I 


I 


i  % 


-wf 


•XII 


m 


350  AN  AGENCY  OF  CITIZEN  INQUIRY 

What  records  or  evidence  of  transactions  are  kept  by 
our  trustees  and  public  servants  ? 

What  may  be  learned  from  these  records? 

What  is  the  story  told  with  respect  to  fidelity,  economy, 
and  efficiency  in  the  admmistration  of  the  public  trust? 

What  information  necessary  to  intelligent  judgment 
with  respect  to  trusteeship  is  lacking? 

In  so  far  as  results  are  unsatisfactory,  is  this  due  to 
the  malfeasance,  misfeasance  and  nonfeasance  of  public 
servants  and  how  much  is  due  to  conditions  for  which 
the  people  themselves  are  responsible? 

What  political  or  administrative  acts  are  necessary  to 
the  removal  of  conditions  adverse  to  fidelity  and  efficiency 
of  municipal  officers  and  employees;  and  what  changes 
in  organization,  what  changes  in  methods  and  procedure, 
must  be  effected  in  order  that  our  trustees  may  conduct 
our  business  with  greatest  economy,  and  efficiency. 

THE  WORK  OF  THE  BUREAU  OF  MUNICIPAL  RESEARCH 

Four  years  ago  a  definite  plan  of  citizen  inquiry  was 
formulated.  Three  years  ago  one  citizen  of  New  York 
became  so  far  interested  in  this  plan,  in  the  possibilities 
of  shaping  opinion  and  directing  cooperation  through 
exact  knowledge,  that  he  undertook  personally  to  support 
the  plan  as  an  experiment.  Two  years  ago  the  original 
plan  had  become  a  conviction  and  three  citizens  of  New 
York  undertook  to  guarantee  the  funds  necessary  to  sup- 
Systematic  port  of  a  vigorous  agency  of  citizen  inquiry, 
toquiry  for  The  Bureau  of  Municipal  Research  was 
formally  incorporated.  One  hundred  and 
fifty  thousand  dollars  has  been  spent  in  acquiring  infor- 
mation concerning  the  great  problem  of  public  business 
in  the  city  of  New  York,  —  about  one  dollar  for  each 
three  thousand  spent  by  the  city  during  the  period  under 


AN  AGENCY  OF  CITIZEN  INQUIRY  851 

review.  The  possibility  of  future  accomplishment  and  of 
future  citizen  influence  when  the  citizen  body  is  actuated 
by  a  knowledge  of  facts,  the  profits  which  may  accrue 
from  an  independent  non-political  citizen  agency  which 
may  continue  to  cumulate  institutional  experience  and 
make  this  available  to  enlightened  citizenship,  is  before 
you. 

Investigation  has  demonstrated  beyond  question  that 
most  of  our  municipal  employees  as  individuals  are  serious 
in  their  work  and  have  the  city's  welfare  at  heart;  inves- 
tigation has  quite  as  conclusively  proved  that  results 
which  are  imfavorable  have  usually  proceeded  from  in- 
stitutional methods  and  practices  for  which  individuals 
in  the  service  are  not  to  be  held  responsible;  that  official 
incompetence  has  usually  been  due  to  the  same  condition 
which  has  caused  citizenship  to  be  ineffective,  viz.,  to  lack 
of  the  institutional  means  through  which  adequate  in- 
formation might  be  obtained.  Citizen,  officer,  and  the 
Methods  of  municipal  employee  have  been  constandy 
making  facts  handicapped  by  your  neglect  to  "  mind  your 
available  ^^^^  business."    For  this  reason  the  Bureau 

has  undertaken  to  place  the  result  of  inquiry  in  the  hands 
of  officers,  in  order  that  methods  which  have  seemed  to 
encourage  infidelity,  and  that  practices  which  seemed 
to  have  produced  waste  and  inefficiency  might  be 
corrected  before  these  practices  and  results  were  made 
public.  In  other  words,  realizing  that  true  democracy 
consists  in  intelligent  cooperation  between  citizens  and 
those  elected  or  appointed  to  serve,  it  is  hoped  that  the 
intelligence  gained  through  systematic  and  independent 
citizen  mquiry  might  be  used  by  the  mayor,  the  comp- 
troller and  heads  of  departments  to  correct  abuses  con- 
cerning which  a  citizen  might  complain,  without  waiting 
for  the  fortuitous  circumstance  a  change  in  administra- 


1  ll 


S52  AN  AGENCY  OF  CITIZEN  INQUIRY 

tion.  That  is,  it  was  thought  that,  under  the  conditions 
present,  better  results  might  be  obtained  through  intelli- 
gent cooperation  than  through  [x)Utical  upheaval  based  on 
partisan  ignorance;  that  the  problem  of  administration 
of  a  great  city  at  the  best  is  a  most  difl&cult  task  and  that 
it  is  the  duty  of  the  citizen  quite  as  much  as  the  duty  of 
the  ofl&cer  to  assume  responsibility  for  the  constructive 
side  of  government. 

A  CONSTRUCTIVE  PROGRAMME 

Notwithstanding  frequent  assertions  to  the  contrary 
on  the  part  of  those  who  have  circulated  false  reports,  or 
who,  without  inquiry,  have  accepted  such  report  as  true, 
"muck-raking"  is  no  part  of  the  work  of  the  Bureau  of 
Municipal  Research.  By  far  the  greater  part  of  the  in- 
formation obtained  has  not  as  yet  been  formally  reported, 
for  the  reason  that  it  was  found  that  constructive  action 
might  be  obtained  by  informally  reporting  conditions  to 
administrative  heads.  A  considerable  number  of  our  most 
important  reports  are  still  impublished  by  reason  of  an 
expressed  desire  on  the  part  of  those  in  authority  and  a 
manifest  disposition  to  use  the  suggestions  effectively  for 
"Muck-raking"  Constructive  ends  and  to  correct  defects 
no  part  of  th«  in  administrative  methods  before  the  con- 
Bureau»8  work  ^j^Jq^s  to  be  remedied  were  given  out.  It 
is  assumed  that  whatever  the  political  faith  and  what- 
ever the  political  faction  represented  in  an  office,  the 
incumbent,  as  trustee,  should  be  permitted  to  take  credit 
for  instituting  measures  to  make  more  effective  the  ad- 
ministration of  his  trust  rather  than  be  placed  in  the 
position  of  being  pubUcly  criticised  for  infidelity  and  offi- 
cial neglect,  due  to  methods  inherited  from  the  past;  that 
when  informed  of  infidelity  and  inefficiency  in  the  service 
and  of  waste  in  management  there  can  be  but  one  result, 


AN  AGENCY  OF  CITIZEN  INQUIRY  853 

namely,  the  use  of  the  authority  and  power  to  correct 
these  conditions;  that  the  conditions  which  have  made  for 
bad  government  have  been  primarily  an  unintelligent 
citizenship  and  lack  of  means  for  obtaining  a  prompt,  full, 
and  accurate  knowledge  of  the  affairs. 

THE  WORK  or  REORGANIZATION  IN  PROGRESS 

As  a  result  of  popular  opinion  based  on  occasional 
disclosures  of  malfeasance  and  misfeasance  in  office,  the 
powers  of  the  comptroller  have  been  enlarged  until  in 
administrative  and  financial  importance  this  office  is 
second  to  none  in  government.  For  half  a  century  the 
comptroller  of  the  city  of  New  York  has  had  powers  ade- 
quate to  devise,  install,  revise,  and  correct  the  methods  of 
accounting  and  reporting  and  the  administrative  business 
practices  of  the  city  of  New   York  — to 

Powers  unused    t    -        .x_  ^  ,      ,         ,  .   , 

made  ;opcrative  "'^S  ^^^^^  ^P  ^0  a  Standard  as  high  as  that 
of  any  private  corporation.  Notwithstand- 
ing this  fact,  at  the  time  Comptroller  Metz  took  office  he 
was  helpless  to  administer  because  there  had  not  been 
estabUshed  in  his  own  office  methods  whereby  he  might 
inform  himself  even  as  to  the  most  essential  facts  pertain- 
ing to  the  business  of  the  city.  There  were  no  records 
in  the  city  from  which  he  might  obtain  accurate  informa- 
tion as  to  the  justice  of  claims  presented,  either  for  ser- 
vice rendered  or  for  goods  dehvered.  There  was  no 
method  by  means  of  which  the  fidelity  of  employees 
having  the  custodianship  of  millions  of  dollars'  worth  of 
supplies  and  materials  and  the  care  of  great  properties, 
might  be  determined.  There  were  no  records  by  means 
of  which  accurate  information  might  be  obtained  as  to 
the  cost  of  operating  and  maintaining  the  various  func- 
tions and  activities  for  which  the  annual  budget  was  voted. 
The  only  controlled  accounts  were  appropriation  and  fund 

24 


854 


AN  AGENCY  OF  CITIZEN  INQUIRY 


;^ 


accounts  and  these  could  not  readily  be  proved  as  to  their 
accuracy.  The  accounts  of  departments  were  set  up 
on  the  basis  of  vouchers  drawn;  the  accounts  of  the 
comptroller  were  set  up  on  the  basis  of  warrants  signed; 
the  accounts-current  of  the  chamberlain  were  prepared 
and  rendered  to  the  comptroller  on  the  basis  of  war- 
rants paid;  the  accounts-current  of  the  chamberlain  were 
reconciled  with  much  difficulty,  but  no  attempt  was 
ever  made  to  reconcile  the  accounts  of  the  departments 
with  those  in  the  comptroller's  office.  LiabiUties  to  the 
amoimt  of  millions  of  dollars  were  not  entered  on  the  city's 
books;  no  accounts  were  kept  of  properties  owned;  comp- 
troller after  comptroller  had  outlived  his  official  term, 
with  full  power  to  correct  and  with  practically  no  results 
in  the  revision  of  business  methods.  This  had  not  been 
due  to  official  carelessness,  but  due  to  the  fact  that  the 
business  of  the  city  had  become  so  encumbered  and  in- 
volved that  a  large  part  of  the  official  term  expired  before 
a  basis  for  inteUigent  judgment  could  be  arrived  at;  and 
then  the  momentum  of  the  institution,  with  its  thousands 
of  employees  whose  customary  method  of  doing  business 
must  in  a  measure  be  interfered  with,  was  so  great  that 
when  atten^pts  were  made  by  individual  officers  and  em- 
ployees to  correct,  the  end  of  an  official  term  or  a  change 
afiFecting  the  prestige  of  those  who  sought  to  improve  was 
made  the  opportunity  for  sliding  back  into  the  old  groove. 
During  Mayor  McClellan's  first  administration  he 
drew  attention  to  the  unsatisfactory  condition  of  the  city's 
finances  and  accoimts,  and  appointed  a  commission  to 
report  with  recommendations.  The  powers  of  account- 
ing revision  lay  with  the  comptroller.  Comptroller  Metz 
was  selected  on  the  platform  of  "a  business  man  for  a 
business  office"  and  definitely  promised  "a  business 
administration."    In  so  far  as  the  Bureau  may  claim 


AN  AGENCY  OF  CITIZEN  INQUIRY  355 

credit  for  any  change  which  has  been  made  in  adminis- 
trative methods  and  procedure,  it  is  for  spending  long 
Cooperation  hours  of  hard  labor  in  finding  out  the  facts, 
of  official  for    assistance    in    getting    before    Mayor 

**  McClellan,  heads  of  administrative  depart- 

ments, and  the  citizenship  of  the  city  a  statement  of  con- 
ditions to  be  corrected ;  for  cooperation  with  Comptroller 
Metz  and  his  official  staff;  for  aid  and  support  in  the 
preparation  of  plans;  for  its  part  in  conferences  with  the 
comptroller,  the  mayor  and  heads  of  departments;  for 
work  on  committees  appointed  by  the  comptroller,  the 
mayor,  and  heads  of  departments,  who  have  had  before 
them  methods  and  procedure,  responsibility  for  the  adop- 
tion of  which  these  officers  have  definitely  assumed. 
Whatever  assistance  may  have  been  rendered  in  the 
preparation  of  plans,  it  is  to  be  remembered  that  the 
adoption  of  these  plans  and  changes  in  procedure  are 
official  acts,  and  not  the  acts  of  a  non-official  citizen  body. 
It  is  further  to  be  remembered  that  responsibility  for  these 
changes  is  official  responsibility. 

During  the  last  two  years  the  office  and  the  work  of 
the  Commissioners  of  Account  has  been  completely  re- 
organized; this  branch  of  the  executive  organization  has 
been  materially  strengthened.  During  the  last  two  years, 
Comptroller  Metz,  assisted  by  Mayor  McClellan  and  the 
heads  of  departments,  has  been  working  out  a  complete 
change  in  methods,  designed  to  enable  citizens  and  officers 
to  think  and  act  mteUigently.  A  uniform  system  of 
accounts  is  now  in  process  of  installation  in  all  departments 
Hew  methods     to  take  the  place  of  the  chaos  of  methods 

and  procedure    which   heretofore   has   prevailed.    In    De- 
installed T_  •         11     . 

cember,  1907,  mstallation  was  begim  along 
these  lines  in  four  of  the  large  departments.  During  the 
summer  of  1908  a  central  system  of  accounting  control 


356  AN  AGENCY  OF  CITIZEN  INQUIRY 

was  devised  by  a  special  staff  of  experts  appointed  by 
Comptroller  Metz  and  responsible  to  him  for  this  work. 
In  September,  1908,  installation  was  begun  in  the  depart- 
ment of  finance  by  the  introduction  of  a  method  of  control 
over  the  signing  and  dispensing  of  warrants.  The  next 
step  was  taken  in  November,  with  the  introduction  of 
central  control  over  certification  and  audit  of  vouchers. 
January  i,  1909,  the  books  and  documents  required  for  a 
complete  imiform  system  of  disbursements  accounts  were 
placed  in  the  accounting  offices  throughout  the  city, 
including  the  department  of  finance. 

The  seriousness  and  magnitude  of  this  imdertaking 
cannot  be  overestimated.  A  complete  change  has  been 
made  in  the  accounts  of  the  department  of  finance  by 
which  control  may  be  exercised  over  department  appro- 
priations, bond  funds,  contracts,  open  market  orders, 
pay-rolls,    stores,    expense    accounts,   and    construction 

accounts  of  one  hundred  different  account- 
citLn  supp'^Jrt    ^^S  offices,  Comprehending  almost  the  full 

range  of  business  activities  and  involving 
changes  of  institutional  customs  and  habits  of  thousands 
of  municipal  employees.  This  is  an  undertaking  that 
requires  the  fullest  support  that  citizen  cooperation  and 
executive  action  can  give.  While  Comptroller  Metz  has 
assumed  official  responsibility  for  these  changes,  what  the 
citizens  of  the  city  of  New  York  should  realize  is  the  fact 
that  the  comptroller  and  the  mayor  and  the  heads  of 
departments  are  their  trustees;  that  this  is  not  the  busmess 
of  these  officers,  but  the  business  of  a  corporation  of  which 
every  citizen  is  a  member;  that  as  citizens  you  owe  it  to 
your  officers  and  servants  of  aU  times,  to  keep  fully  in- 
formed about  the  business  of  this  city;  that  this  is  your 
busmess,  and  without  this  information  you  cannot  "mind 
your  own  business." 


AN  AGENCY  OF  CITIZEN  INQUIRY 


S57 


THE   CONTINUING   NEED   FOR   AN    INDEPENDENT   CITIZEN 

AGENCY 

The  needs  of  government  are  largely  business  and  not 
political  needs.  In  the  past  it  has  been  assumed  that 
charter  powers  and  "good"  men  were  the  only  elements 
essential  to  the  conduct  of  the  business  of  a  great  pubUc 
corporation.  The  army  of  employees,  the  methods  and 
Heeds  of  equipment  needed  to  make  this  army  effi- 

govemment  dent,  have  been  lost  sight  of.  Without  an 
business  needs  appreciation  of  the  administrative  problem, 
without  concrete  knowledge  of  methods,  equipment,  or 
results,  citizen  organizations,  pubUcists,  and  the  press 
have  assumed  to  reach  conclusions,  to  express  opinions, 
and  to  formulate  these  into  constitutional  and  admin- 
istrative law.  Without  knowledge  either  as  to  the 
organized  agencies  of  public  business  or  as  to  personal 
qualifications,  without  knowing  what  had  been  accom- 
plished or  what  had  been  left  undone,  citizens  have 
assumed  to  elect  and  depose,  institute  and  repeal.  It 
has  been  only  recentiy  that  the  thought  has  become 
current  that  the  problem  of  administration  of  public 
corporate  business  is  just  as  exacting,  requires  as  great 
ability  and  as  close  application  to  assure  success,  as  the 
problem  of  private  corporate  administration;  that  in 
large  measure  public  business  is  administrative  and  non- 
political;  that  the  success  of  public  administration  de- 
pends on  abiUty  inteUigentiy  to  direct  and  control  the 
millions  of  details  rather  than  abiUty  to  organize  and 
crystallize  popular  opinion  in  support  of  political 
theories. 

A  more  direct  and  forceful  expression  of  this  conviction 
has  never  been  uttered  than  by  Governor  Hughes.  The 
continuing  need  for  an  agency  of  citizen  inquiry  has  been 


I 


(I 


m 


858  AN  AGENCY  OF  CITIZEN  INQUIRY 

clearly  defined  by  him.  The  sincerity  of  his  statement 
A  citizen's  busi-  ^^^.  ^^^  ^^^^  Convincing  when  during  the 
ness  as  defined    closing  hours  of  the  last  Campaign  he  de- 

Hu^el*"'*'  P^^^  ^^^°^  ^^^  ^^^  ^^  vote-getting  to 
accept  an  invitation  to  speak  at  the  Budget 
Exhibit  which  was  being  held  in  the  city  of  New  York. 
An  excerpt  from  his  address  is  here  given,  not  because  of 
its  reference  to  the  work  of  a  particular  citizen  organiza- 
tion, but  because  it  may  be  accepted  as  an  authoritative 
expression  of  a  new  view  of  citizen  responsibility. 

"I  have  come  here,"  said  Governor  Hughes,  "not  to 
make  a  partisan  speech.    I  have  come  from  a  desire  to 
show  interest  in  a  movement  in  which  all  our  citizens, 
irrespective  of  party,  are  deeply  concerned.    Whatever 
naay  be  our  party,  after  the  issue  the  vast  majority  of  our 
citizens  are  sincerely  desirous  to  have  an  economical  and 
efl&cient   administration  of  our  government.    What  we 
desire  more  than  anything  else  is  to  get  at  the  actual 
facts.    I  have  no  patience  whatever  with  indiscriminate 
censure  of  public  officials.    I  have  every  desire  that  study 
and  investigation  should  precede  action  and  that  in  all 
these  important  matters  we  should  diUgendy  strive  to 
know  the  truth  and  to  work  together  with  the  fullest 
degree  of  cooperation  to  improve  our  system  of  adminis- 
tration.   As  you  know,   I  believe  most   thoroughly   in 
'home  rule.'    I  have  sought  m  many  ways  to  show  my 
desire  that  the  principles  of  *home  rule'  should  be  main- 
tained.    One  thing  that  has  struck  me  more  than  any- 
thmg  else  during  the  past  few  years  is  the  very  large 
number  of  our  citizens  who  in  an  unofiicial  way,  but  none 
the  less  effective  way,  are  endeavoring  to  get  at  the  facts 
regarding  state  and  local  administration,  and  to  make  a 
genuine  contribution  to  progress. 
"We  are  here  under  the  auspices  of  a  bureau  which, 


AN  AGENCY  OF  CITIZEN  INQUIRY  859 

I  believe,  in  the  character  of  its  investigations  to  aid 
administration  in  this  city  marks  one  of  the  most  important 
movements  of  recent  years.    The  Bureau  of  Municipal 
Research  is  striving  to  get  at  the  facts  in  an  honorable, 
straightforward  way,  and  is    striving    to   present    them 
so  that  they  will  be  intelligendy  comprehended.     This 
Budget  Exhibit,  a  method  of  presenting  in  an  attractive 
and  forcible  way  the  facts  regarding  our  city  Ufe,  is  an 
important  advance  over  the  old  methods  of  circulating 
information.  ...  It  is  important  not  only  to  insist  upon 
honesty  and  impartiality,  but  also  the  highest  degree  of 
eflaciency.     I  do  not  sympathize  with  those  who  say  that 
we  cannot  expect  to  have  our  pubUc  business  conducted 
on  as  honest  and  efficient  a  basis  as  is  private  busmess. 
Whatever  our  attitude  toward  government  may  be,  there 
is  a  wide  sphere  in  which  government  must  act.     That 
sphere  is  extending.     The  necessary  activities  of  state 
and  city  are  extending.     What  can  be  done  to  further  the 
highest  de^ee  of  efficiency  presents  the  most  serious  tests 
of  our  institutions  and  we  must  devote  ourselves  in  the 
future  to  the  solving  of  these  problems  in  an  intelligent 
and  thorough-going  manner.    Not  for  political  capital! 
Not  for  its  own  sake!    I  believe  in  quiet  effective  work 
which  gets  patiently  at  the  facts  and  presents  them  to 
the  intelligent  judgment  of  the  community.    Then  we  can 
stand  together  and  insist  upon  reforms  the  facts  justify. 
We  have  had  during  the  past  years  just  precedmg  those 
when  most  of  us  came  upon  the  pubhc  stage  a  splendid 
illustration  of  sacrifice  and  heroism  and  devotion  to  the 
interests  of  the  country. 

"We  have  had  an  illustration  of  the  fact  that  if  we  are 
ever  threatened  by  foreign  powers,  our  young  men  would 
rush  from  their  work  with  a  sincere  desire  to  serve  the 
interests  of  the  country.    We  must  never  forget  that  the 


360  AN  AGENCY  OF  CITIZEN  INQUIRY 

same  flag  floats  over  the  capital  at  Albany  and  the  City 
Hall  of  New  York,  and  so  often  as  intelligent  appeal  is 
made  we  may  expect  the  same  patriotic  service  in  rela- 
tion to  the  oflScial  management  of  state  and  city.  We 
have  thousands  of  men  who  are  giving  faithful  service  in 
public  employment.  Don't  make  the  mistake  of  making 
every  man  who  holds  a  public  office  feel  that  he  is  con- 
sidered dishonest,  —  because  he  is  serving  in  a  public 
capacity  that  the  presumptions  are  against  him. 

"  If  we  want  good  service  we  must  vigorously  criticize  un- 
faithful service.  And  if  we  are  going  to  have  good  results 
we  must  hold  up  the  hands  of  the  official  who  is  trying 
to  do  his  duty.  In  this  city  and  in  the  state  and  in  our 
various  local  organizations  throughout  the  state  we  have 
a  great  number  of  men  who  are  putting  in  their  time  and 
best  work  in  the  endeavor  to  do  the  business  allotted 
to  them  in  the  most  efficient  way.  We  can  aid  them  by 
insisting  on  standards  which  have  been  uplifted  for  a 
business-Hke  administration,  by  holding  up  these  stand- 
ards and  securing  the  general  opinion  of  the  public  in 
favor  of  maintaining  an  administration  based  on  real 
facts  of  the  sort  accepted  in  private  business.  Don*t  be 
cynical.  We  can  have  just  what  we  want  if  we  keep  at 
it  faithfully  and  expeditiously.  This  exhibit  represents 
an  enormous  amount  of  work  on  the  part  of  men  who  are 
trying  to  get  at  the  facts,  not  for  any  selfish  purpose,  not 
for  any  censorious  purpose,  not  for  political  or  partisan 
purpose,  but  for  honest  government." 

One  thought  I  would  leave  with  you,  viz.,  that  the  ability 
of  the  people  to  rule  must  depend  on  the  inteUigence  of 
public  opinion.  Public  opinion  is  the  force  which  governs. 
It  determines  our  morals;  it  controls  us  in  our  daily  lives; 
it  makes  for  individual  success  and  failure;  it  is  the  law 
of  business,  pubUc  and  private;  it  repeals  constitutions. 


AN  AGENCY  OF  CITIZEN  INQUIRY 


861 


annuls  statutes,  and  reverses  decisions  of  courts  without 
going  through  legal  forms  and  conventions;  it  decides 
EnUghtened  what  the  government  shall  be  and  under- 
pubuc  opinion  take;  it  elects  our  officers,  approves  and 
the  desideratum  disapproves  their  acts.  In  a  democracy, 
public  opinion  wields  the  sceptre.  Whether  it  shall  be 
used  to  crucify  truth  and  sanctify  falsehood,  or  for  ends 
of  social  justice,  whether  officers  and  agents  shall  be  suc- 
cessful in  the  administration  of  our  great  public  trusts, 
whether  funds  and  properties  shall  be  faithfully  and  effect- 
ively employed  for  the  welfare  of  the  people,  must  depend 
on  the  intelligence  of  this  opinion.  In  calling  your  atten- 
tion to  the  continuing  need  for  an  independent,  non-par- 
tisan agency  of  citizen  inquiry  through  which  citizenship 
may  be  made  effective,  through  which  you  may  be  syste^ 
matically  informed  of  the  details  of  public  business, 
through  which  the  force  of  popular  opinion  may  be  used 
for  community  welfare,  we  are  asking  you  to  mind  your 
own  business. 


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